Nvidia’s shares closed at a record high on Monday, buoyed by a continued surge in AI hardware stocks driven by robust investor enthusiasm over rising demand for artificial intelligence technology. The stock has risen 8% since last week, bringing Nvidia closer to overtaking Apple as Wall Street’s most valuable company. This rally follows optimistic remarks from CEO Jensen Huang and other partners highlighting the significant demand for Nvidia’s AI chips.
In addition to Nvidia, several other AI chip and hardware stocks have also posted gains. Companies such as Arm, Qualcomm, Broadcom, Super Micro Computer, Astera Labs, and Micron have reported strong demand for their products, benefitting from the ongoing AI boom. Taiwan Semiconductor Manufacturing Company (TSMC) also reached a record high on Monday.
Overall, the PHLX Semiconductor Index rose 4.5% over the past five days, outpacing the S&P 500, which climbed 2.9% during the same period. This upward trend in AI chip stocks reflects a positive outlook for AI hardware spending, alleviating Wall Street’s concerns about a potential slowdown in investment.
Goldman Sachs analysts noted in a report on October 10 that while stocks related to AI infrastructure, such as Arm, TSMC, and Super Micro Computer, may seem slightly overvalued compared to historical levels, the growing demand for AI could drive mega-cap tech companies to increase their spending on AI-related capital expenditures beyond current expectations.
Major tech firms, including Google, Microsoft, Amazon, and Meta, have all indicated plans to invest heavily in AI infrastructure throughout next year, creating a favorable environment for AI hardware manufacturers like Nvidia. Collectively, these large tech companies are projected to allocate $215 billion for AI capital expenditures in 2024 and $250 billion in 2025, according to Goldman Sachs.
OpenAI’s recent $6.6 billion funding round is expected to provide additional resources for hardware companies, particularly Nvidia, as it advances its AI models.
JPMorgan analyst Harlan Sur forecasts that the semiconductor industry will see revenue growth of 6% to 8% in 2024. In a recent note to investors, he expressed optimism about semiconductor and semiconductor equipment stocks, stating, “We believe stocks should continue to move higher in anticipation of better supply/demand dynamics in the second half of 2024 and into 2025, along with stable or rising earnings power trends in calendar year 2024 and 2025.”
However, analysts warn that a slowdown in investment is inevitable. The crux of the matter is when it will occur. Unlike AI software, which is typically offered through subscription models, hardware is a one-time sale. Consequently, there are concerns that AI chip stocks may be experiencing a bubble that could burst once Big Tech’s substantial spending on AI infrastructure begins to taper off.
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