Nvidia’s (NVDA) record close on Monday comes as AI hardware stocks continue a recent slide fueled by investor enthusiasm for growing demand for artificial intelligence.
Nvidia shares are up 8% from last week, bringing the chipmaker closer to unseating Apple (AAPL) as the most valuable company on Wall Street. The stock’s rally follows recent comments from CEO Jensen Huang and the chipmaker’s partners touting intense need for the company’s AI chips.
Other AI hardware and chip stocks Arm (ARM), Qualcomm (QCOM), Broadcom (AVGO), Super Micro Computer (SMCI), Astera Labs (ALAB), and Micron (MU) have also risen as the companies have separately given indications of strong demand for its products, thanks to the rise of AI. TSMC (TSM) stock also closed at an all-time high on Monday.
In total, the PHLX Semiconductor Index (^SOX) is up 4.5% over the past five days, outperforming the S&P 500 (^GSPC), which is up 2.9% over the same time period.
The upward trajectory of AI chip stocks is a positive sign for AI hardware spending that eases Wall Street’s concerns about a short-term investment slowdown.
“Although Phase 2 stocks [i.e. AI infrastructure-related stocks, such as Arm, TSMC, and SMCI] “look modestly expensive relative to history, AI demand may lead large-cap tech stocks to spend even more on AI-related capital expenditures than investors and analysts currently expect,” the analysts wrote. from Goldman Sachs in its October 10 report.
Google (GOOG), Microsoft (MSFT), Amazon (AMZN) and Meta (META) have indicated they will continue to spend large sums of money on AI infrastructure over the next year, benefiting AI hardware companies, led by Nvidia . Collectively, mega-cap tech companies will spend $215 billion on AI capital investments in 2024 and $250 billion in 2025, according to Goldman Sachs.
OpenAI’s recent $6.6 billion funding round is also expected to put money into the hands of hardware companies, specifically Nvidia, as it continues to evolve its AI models.
JPMorgan analyst Harlan Sur forecasts semiconductor industry revenue will grow 6% to 8% in 2024. “We remain positive on semiconductor and semiconductor equipment stocks,” he said in a note. recently to investors, “as we believe the stock should continue to rise.” in anticipation of improved supply/demand in 2H24/25 and stable/increasing earnings power trends in FY24/25.”
However, there will eventually be a slowdown in investment. The question is when.
While AI software is typically offered on a subscription basis, hardware is sold on a one-time basis. Analysts have warned that AI chip stocks are in a bubble that will eventually burst once Big Tech’s massive spending on AI infrastructure subsides.
Indeed, the tech giants’ latest earnings reports show a widening gap between their heavy spending on AI infrastructure and their return on investment, and tested Wall Street’s waning patience. Shares of Google, Microsoft and Amazon fell late this summer following their quarterly financial reports, which showed billions in spending on AI.
“We continue to believe that data center infrastructure spending will be strong this year and possibly next,” DA Davidson analyst Gil Luria told Yahoo Finance in an email, “but that there will eventually be a capex spike. by the hyperscalers, as soon as the next [calendar] year.”
Laura Bratton is a Yahoo Finance reporter. Follow her on X @LauraBratton5.
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