Capitalizing on AI: Chip Stocks Surge After Big Tech Earnings
Topline
Chip stocks like Nvidia, Arm Holdings, and AMD saw a boost in premarket trading on Friday following impressive earnings announcements from tech giants Alphabet and Microsoft. Both companies highlighted the potential of artificial intelligence (AI), indicating that their substantial investments in this technology are beginning to yield results. This signals a promising future for the AI industry and suggests that the competitive AI landscape will continue to evolve as companies commit to further development.
Key Facts
Shares of leading chipmakers Nvidia and Advanced Micro Devices (AMD) rose by 2% to 3% during premarket trading on Friday after explicit commitments from Alphabet and Microsoft to heavily invest in AI. These tech giants showcased the tangible financial benefits stemming from AI technology.
Alphabet’s stock surged by 12% after the market closed on Thursday, while Microsoft experienced over a 4% increase. Other tech companies like Amazon also saw a rise of more than 3%, driven by the positive investor response.
The continued significant investments by tech giants in AI present a lucrative opportunity for chipmakers such as Nvidia. Although not directly involved in AI system development, Nvidia’s products play a crucial role in powering platforms like OpenAI’s ChatGPT, Google’s Gemini, and Anthropic’s Claude.
Additionally, other companies specializing in AI hardware, including Arm Holdings, ASML Holding, and Micron Technology, experienced a growth of around 1.5% in premarket trading.
Several other firms integral to the AI ecosystem, such as Applied Materials, Samsung Electronics, and Taiwan Semiconductor Manufacturing Company, witnessed more modest increases of around 0.5%.
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News Peg
Microsoft and Alphabet’s swift embrace of AI, heralded by CEO Sundar Pichai as a “once-in-a-generation opportunity,” reflects the growing trend among Silicon Valley’s major players. Since the debut of OpenAI’s ChatGPT in 2022, technology behemoths have been channeling hefty investments into AI startups like Anthropic, OpenAI, Mistral, and Inflection AI. While the industry players express confidence in AI’s potential, Wall Street remains cautious about the profitability of such ventures, given the significant expenses involved.
What To Watch For
Alphabet’s robust earnings performance positions it to potentially surpass a $2 trillion market cap, setting the stage to become the first company globally to achieve this milestone when markets open on Friday.
Contra
Investor sentiment towards Alphabet and Microsoft sharply contrasts with the reception of Facebook and WhatsApp parent Meta in the preceding days. Meta’s stock plummeted following the company’s earnings report, which highlighted robust performance but cautioned about slowing growth due to heavy investments in AI. The introduction of Meta AI, an AI assistant released as a standalone tool, aims to compete with leading AI models from industry giants like OpenAI’s ChatGPT and Alphabet’s Gemini. Despite acknowledging the challenge of monetizing AI technology, Meta’s CEO Mark Zuckerberg remains optimistic about the long-term prospects of Meta AI.