Home Finance Nvidia and other chip stocks are rising, with no sign of slowing AI spending — for now

Nvidia and other chip stocks are rising, with no sign of slowing AI spending — for now

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Nvidia and other chip stocks are rising, with no sign of slowing AI spending — for now

Nvidia’s (NVDA) record on Monday comes as AI hardware stocks continue their recent tear, fueled by investor enthusiasm over rising demand for artificial intelligence.

Nvidia shares are up 8% from last week, bringing the chipmaker closer to dethroning Apple ( AAPL ) as Wall Street’s most valuable company. The stock’s rally follows recent comments from CEO Jensen Huang and the chipmaker’s partners advocating an intense need for the company’s AI chips.

Other AI chip and hardware stocks Arm (ARM), Qualcomm (QCOM), Broadcom (AVGO), Super Micro Computer (SMCI), Astera Labs (ALAB) and Micron (MU) also rose as the companies gave individual shares . directions from strong demand for their products, thanks to the AI ​​boom. Shares of TSMC (TSM) also closed at an all-time high on Monday.

Overall, 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 period.

The upward trajectory of AI chip stocks is a positive sign for AI hardware investment, easing Wall Street concerns about a near-term slowdown in investment.

“While phase 2 stocks [i.e. AI infrastructure-related stocks, such as Arm, TSMC, and SMCI] While demand for AI appears modestly expensive compared to history, it is possible that demand for AI will lead mega-cap tech stocks to spend even more on AI-related investments than investors and analysts currently expect,” Goldman Sachs analysts wrote in their report on October 10. .

Google (GOOG), Microsoft (MSFT), Amazon (AMZN) and Meta (META) have all indicated that they will continue to spend large sums on AI infrastructure in the coming year, to the benefit of AI hardware companies led by Nvidia. According to Goldman Sachs, mega-cap tech companies will spend a total of $215 billion on AI investments by 2024 and $250 billion by 2025.

OpenAI’s recent $6.6 billion funding round is also expected to put money into the hands of hardware companies – namely Nvidia – as it continues to develop its AI models.

People visit Nvidia's booth during Alibaba Cloud's Apsara Conference 2024 in China in September 2024. (Photo credit should be LONG WEI/Feature China/Future Publishing via Getty Images)People visit Nvidia's booth during Alibaba Cloud's Apsara Conference 2024 in China in September 2024. (Photo credit should be LONG WEI/Feature China/Future Publishing via Getty Images)

People visit Nvidia’s booth during Alibaba Cloud’s Apsara Conference 2024 in China in September 2024. (Photo credit should be LONG WEI/Feature China/Future Publishing via Getty Images) (Feature China via Getty Images)

JPMorgan analyst Harlan Sur sees semiconductor industry revenues growing 6% to 8% through 2024. “We remain positive on semiconductor and semiconductor equipment stocks,” he said in a recent note to investors, “as we believe stocks should continue to move higher. in anticipation of better supply/demand in the second half of 24/25 and stable/increasing earnings trends in 24/25.”

Ultimately, however, there will be a slowdown in investment. The question is when.

While AI software is typically offered on a subscription basis, hardware is a one-time sale. Analysts have warned about this AI chip stocks are in a bubble which will eventually burst once Big Tech’s massive spending on AI infrastructure subsides.

Indeed, tech giants’ latest earnings reports show a widening gap between their high spending on artificial intelligence infrastructure and their returns on investments – testing Wall Street’s waning patience. Shares of Google, Microsoft and Amazon all fell late this summer after their quarterly financial reports showed billions in AI spending.

“We continue to believe that data center infrastructure spending will be strong this year and possibly next year,” DA Davidson analyst Gil Luria told Yahoo Finance in an email, “but that there will eventually be a peak in capex expenses of the hyperscalers. as early as next [calendar] years.”

Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.

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