Promises of a future when artificial intelligence drives a surge in sales for chipmakers are no longer cutting it in the stock market. These days, hard evidence of progress toward that is needed.
(Bloomberg) — Promises of a future when artificial intelligence drives a surge in sales for chipmakers are no longer cutting it in the stock market. These days, hard evidence of progress toward that is needed.
Take the case of Advanced Micro Devices Inc. The stock jumped 6.1% on Thursday on news it’s working with Microsoft Corp. on technology for AI workloads to rival those from Nvidia Corp. That almost erased losses suffered a day earlier after a weak revenue forecast overshadowed assurances from Chief Executive Officer Lisa Su that AMD is well positioned to capitalize on growth in AI computing.
Chip-related stocks have emerged this year as a popular way for investors to gain exposure to AI after the adoption of OpenAI’s ChatGPT created a trader frenzy. The biggest beneficiary so far has been Nvidia, whose shares are up 90% this year in a reflection of its market dominance. As its only real rival in the type of graphics chips that data center owners are increasingly turning to, AMD has gained 32%.
“AI deserves all the hype it gets and more,” said Olivier Sarfati, head of equities at GenTrust. “Money is going to be made in processors, cloud services, data center, to say nothing of industries in general.”
Still, just talking about a company’s capabilities for AI computing isn’t getting the rosy reception from investors it once did. In the absence of new developments, market watchers are turning their gaze to a more immediate issue — weak demand for personal computers and smartphones.
The work with Microsoft doesn’t change much right now for AMD fundamentally, according to Bernstein analyst Stacy Rasgon, and on Friday AMD shares slipped back 1.8%. Instead, it offers “a narrative boost as they try to shift the story toward AI,” he wrote in a note.
To that end, AMD’s Su dedicated a large chunk of this week’s earnings call to AI. The area is the company’s “number one strategic priority,” she told analysts, highlighted by the more than 50 mentions of the term ‘AI’ on the call.
Underlining the trend, Qualcomm Inc. CEO Cristiano Amon also talked up his company’s AI bona fides on the chipmaker’s earnings call on Wednesday. Yet that wasn’t enough to stop the stock from falling more than 5% the following day after a quarterly revenue forecast that trailed estimates.
Chegg’s 50% Wipeout Shows Shock of AI Colliding With US Business
The true test of whether investors are now turning a deaf ear to promises of future AI business will come later this month when Nvidia reports. The surge in its shares has added $330 billion in market capitalization and made the company the sixth most-valuable in the S&P 500.
Even more remarkable is that the rally has come amid falling sales. Nvidia’s revenue has been hurt by the slump in personal computers and is expected to have dropped 22% in the first quarter, according to the average of analyst estimates compiled by Bloomberg.
Three months ago when Nvidia last reported earnings the term ‘AI’ was used more than 80 times on its conference call with analysts. While CEO Jensen Huang has earned the right to talk about the subject more than anyone else, there’ll be more pressure than ever to keep proving it’s translating into real earnings growth.
Tech Chart of the Day
The Nasdaq 100 Index is coming off a four-day drop, the longest such streak for the tech-heavy index since a five-day decline that ended in December. While the streak is the longest of the year, the scale is relatively muted; the gauge only declined 2% during the current slump. The index remains up about 19% this year, and recently closed at its highest since August. The index rose 0.9% on Friday.
Top Tech Stories
- Sales of Apple Inc.’s iPhone rebounded last quarter, helping the world’s most valuable company top earnings estimates and weather an industrywide downturn that has battered much of its product lineup.
- Chief Executive Officer Tim Cook expressed cautious optimism about the flood of new artificial intelligence services, saying that while the technology has huge potential, there also are “a number of issues that need to be sorted.”
- Cook singled out India as pivotal for the iPhone maker, underscoring how the world’s most populous country is on the cusp of becoming both a major market and production base.
- A senior software engineer at Google wrote a critique asserting that the internet search leader is losing its edge in artificial intelligence to the open-source community, where many independent researchers use AI technology to make rapid and unexpected advances.
- Tesla Inc. raised the prices of its premium models in China, following a small increase in the cost of its top-selling Model 3 and Model Y earlier in the week.
- Alibaba Group Holding Ltd.’s international online shopping unit is exploring a US initial public offering as it weighs options to spur growth for the business that includes major e-commerce brands Lazada and AliExpress.
–With assistance from Ryan Vlastelica and Subrat Patnaik.
(Updates to market open.)
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