Nvidia (NVDA) had a breakthrough on Monday as the company achieved a record close in the stock market. This success comes as AI hardware equities have been on a recent upward trajectory, driven by investor excitement for the growing demand for artificial intelligence technology.
In the past week alone, Nvidia’s shares surged by an impressive 8%, bringing the chipmaker closer to surpassing Apple (AAPL) as the most valuable company on Wall Street. The recent increase in Nvidia’s stock price can be attributed to statements made by CEO Jensen Huang and the company’s partners, who have highlighted the crucial importance of Nvidia’s AI processors in meeting the current market demands.
The AI boom has not only benefited Nvidia but has also led to a surge in the stock prices of other AI processor and hardware companies. Companies such as Arm (ARM), Qualcomm (QCOM), Broadcom (AVGO), Super Micro Computer (SMCI), Astera Labs (ALAB), and Micron (MU) have all experienced significant increases in their stock prices as a result of the growing demand for their products. Additionally, TSMC (TSM) also reached a record high in their stock price on Monday, further solidifying the positive trend in the AI hardware sector.
Overall, the PHLX Semiconductor Index (^SOX) has seen a notable increase of 4.5% over the past five days, outperforming the S&P 500 (^GSPC) which only saw a 2.9% increase during the same period. This upward trajectory in AI chip equities is a promising sign for AI hardware spending, alleviating concerns on Wall Street about a potential slowdown in investment in the near future.
Analysts at Goldman Sachs have expressed optimism about the future of AI-related stocks, particularly in the AI infrastructure sector. Companies such as Arm, TSMC, and SMCI, while appearing slightly expensive compared to historical trends, are expected to see increased demand as mega-cap tech companies continue to invest heavily in AI infrastructure. Google, Microsoft, Amazon, and Meta have all committed to allocating significant resources to AI infrastructure in the coming year, which will benefit AI hardware companies like Nvidia.
In fact, Goldman Sachs predicts that mega-cap tech companies will invest between $215 billion and $250 billion in AI capital expenditures in 2024 and 2025, respectively. Furthermore, OpenAI’s recent $6.6 billion funding round is expected to provide additional capital to hardware companies like Nvidia as they continue to develop advanced AI models.
Analyst Harlan Sur from JPMorgan also forecasts a 6% to 8% increase in semiconductor industry revenue by 2024, indicating a positive outlook for the industry. He specifically mentioned that semiconductor and semiconductor equipment stocks are poised for growth, driven by improved supply and demand dynamics in the latter half of 2024 and 2025.
However, there are concerns about a potential decline in investments in the future. Analysts warn that the current bubble in AI chip companies could burst due to a decrease in spending by major tech companies on AI infrastructure. While AI software typically operates on a subscription basis, hardware is a one-time purchase, which could lead to a slowdown in demand.
The recent earnings reports of major tech companies revealed a gap between their substantial investments in AI infrastructure and their return on investment, causing unease among investors. Following these reports, the stocks of companies like Google, Microsoft, and Amazon experienced declines in the summer, reflecting concerns about the sustainability of their AI-related investments.
In conclusion, while the future of AI hardware companies like Nvidia looks promising in the short term, there are uncertainties about the long-term sustainability of the current AI investment trend. It remains to be seen how the industry will navigate potential challenges and whether the investments in AI infrastructure will continue to drive growth in the sector.
