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On Monday, Nvidia (NVDA) achieved a record close, as AI hardware equities have been on a recent upward trajectory, driven by investor enthusiasm for the increasing demand for artificial intelligence.
Nvidia’s shares have increased by 8% since the previous week, thereby bringing the chipmaker closer to surpassing Apple (AAPL) as the most valuable company on Wall Street. The stock’s recent increase is a result of recent statements made by CEO Jensen Huang and the chipmaker’s partners, who have emphasized the critical need for the company’s AI processors.
The AI boom has also resulted in a surge in the stock prices of other AI processor and hardware companies, including Arm (ARM), Qualcomm (QCOM), Broadcom (AVGO), Super Micro Computer (SMCI), Astera Labs (ALAB), and Micron (MU). Each company has provided unique indications of strong demand for its products. On Monday, the stock of TSMC (TSM) also reached a record high.
In summary, the PHLX Semiconductor Index (^SOX) has increased by 4.5% over the past five days, surpassing the S&P 500 (^GSPC), which increased by 2.9% during the same period.
The upward trajectory of AI chip equities is a positive indicator for AI hardware spending, which alleviates Wall Street’s apprehensions regarding a near-term investment slowdown.
While Phase 2 stocks [i.e. AI infrastructure-related stocks, such as Arm, TSMC, and SMCI] appear modestly expensive relative to history, it is possible that the demand for AI leads the mega-cap tech stocks to spend even more on AI-related capex than investors and analysts currently expect,” analysts at Goldman Sachs wrote in their report on October 10.
Google (GOOG), Microsoft (MSFT), Amazon (AMZN), and Meta (META) have all stated that they will continue to allocate substantial quantities to AI infrastructure through the upcoming year. This will be advantageous for AI hardware companies, including Nvidia. According to Goldman Sachs, megacap tech companies are anticipated to allocate $215 billion and $250 billion to AI capital expenditures in 2024 and 2025, respectively.
It is also anticipated that OpenAI’s most recent $6.6 billion funding round will provide hardware companies, such as Nvidia, with capital as it continues to develop its AI models.
Harlan Sur, an analyst at JPMorgan, anticipates that the semiconductor industry’s revenues will increase by 6% to 8% in 2024. In a recent communication to investors, he stated, “We are optimistic about semiconductor and semiconductor equipment stocks. We anticipate that stocks will continue to rise in anticipation of improved supply/demand in 2H24/25 and stable/rising earnings power trends in CY24/25.”
However, an eventual decrease in investment is inevitable. The inquiry pertains to the timing.
Unlike AI software, which is typically available on a subscription basis, hardware is sold once. Analysts have cautioned that AI chip companies are currently in a bubble that will eventually deflate as a result of the significant reduction in spending by Big Tech on AI infrastructure.
Certainly, the most recent earnings reports of technology titans revealed a growing disparity between their substantial expenditures on artificial intelligence infrastructure and their return on investment, which strained Wall Street’s already fraying patience. Following their quarterly financial reports, which disclosed billions in AI expenditures, the equities of Google, Microsoft, and Amazon all declined in the latter part of the summer.
In an email to Yahoo Finance, D.A. Davidson analyst Gil Luria stated, “We remain optimistic that the spending on data center infrastructure will be robust this year and potentially into the following year. However, we anticipate that the hyperscalers will reach a capex peak as early as the following calendar year.”
Another contributing factor to the surge in AI hardware equities is the ongoing global chip shortage. Despite ongoing efforts to increase production capacity, the chip industry has faced significant challenges meeting the rising demand for semiconductor products. This has led to increased investment in AI chip companies as investors anticipate continued demand growth in the sector.
As the adoption of artificial intelligence technology continues to increase across various industries, companies that specialize in AI hardware are poised to benefit from this trend. The capabilities of AI processors are essential for running complex algorithms and applications that are essential for AI development. This has led to a growing demand for specialized hardware that can support the computational requirements of AI tasks.
The increasing interest in AI hardware companies is also reflected in the growing investment in research and development in the field of artificial intelligence. Companies are constantly looking for ways to improve the efficiency and performance of their AI systems, which requires cutting-edge hardware solutions. This has created a lucrative market for AI chip manufacturers who are at the forefront of developing innovative technologies to support the evolving needs of the AI industry.
In conclusion, the recent surge in AI hardware equities reflects the growing demand for artificial intelligence technology and the pivotal role that specialized hardware plays in powering AI applications. As companies continue to invest in AI infrastructure and technology, the market for AI hardware is expected to grow, providing lucrative opportunities for investors and companies operating in this space. The ongoing global chip shortage and increasing investments in AI research and development further underscore the importance of AI hardware in driving the future of artificial intelligence.
