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Semiconductor stocks have rallied sharply this year as the sector is swept in the artificial intelligence (AI) frenzy. Despite falling chip sales, some chip-related stocks are climbing on hopes of future sales related to AI. The biggest benefactor of the AI frenzy is Nvidia (NVDA), whose shares are up +89% this year. Also, Advanced Micro Devices (AMD), the only real rival to Nvidia as a maker of graphic chips used in AI applications, is up more than +34%.
Advanced Micro Devices rallied more than +5% Thursday after Microsoft (MSFT) said it was helping finance AMD’s expansion into AI processors. Also, AMD CEO Su noted that her company was well-positioned to capitalize on growth in AI computing. Just a day earlier, AMD tumbled more than -9% after giving a weak revenue forecast for the current quarter due to tepid personal computer (PC) sales.
Just by talking about AI, company executives have sparked rallies in chip stocks. AMD CEO Su on Wednesday mentioned the term “AI” more than 50 times during an earnings call and said the area is the company’s “number one strategic priority.” Also, Qualcomm (QCOM) CEO Amon talked up his company’s AI expertise on an earnings call Wednesday. Gen Trust said, “AI deserves all the hype it gets and more. Money is going to be made in processors, cloud services, data centers, to say nothing of industries in general.”
A bigger test for the promises of the AI hype will be when Nvidia reports earnings later this month. Nvidia has rallied sharply despite falling sales. Nvidia’s revenue has been hurt by the slump in PC sales and is projected to drop -22% in Q1, according to Bloomberg data. When Nvidia reported its last earnings results three months ago, CEO Huang mentioned the term “AI” more than 80 times in his conference call with analysts, further fueling a rally that has added more than $300 billion in market capitalization and made Nvidia the sixth most-valuable company in the S&P 500 ($SPX) (SPY).
However, just talking about a company’s capabilities for AI computing isn’t fueling the gains in AI-related chip stocks that it once did. Without new AI fundamentals, investors are looking to see if chip stocks can overcome the current weak demand for PCs and smartphones. Qualcomm tumbled more than -5% Thursday as a disappointing earnings forecast shows weak demand for mobile devices, leading to a buildup in handset chips, the company’s main source of revenue. Qualcomm fell Thursday even after CEO Amon tried to talk up the company’s AI prospects in an earnings call, which shows the market wants to see actual sales gains before pushing AI-related chip stocks higher.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
