AI sparks euphoria in the stock market of industrial microchip companies

Artificial intelligence has catapulted the microchip industry to the top of the global stock market.

Oliver Thansan
Oliver Thansan
24 August 2023 Thursday 11:06
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AI sparks euphoria in the stock market of industrial microchip companies

Artificial intelligence has catapulted the microchip industry to the top of the global stock market. The company Nvidia, which designs practically all of ChatGPT's chips, surprised again after presenting quarterly results above expectations.

Between April and June, the Silicon Valley group brought in $13.5 billion, which is twice as much as in the same period the previous year. But more spectacular were the profits, which were multiplied by nine, until reaching 6.18 billion dollars. Of course, Wall Street celebrated the results. It boosted the share price up to 8% and confirmed, once again, that Nvidia's capitalization exceeds one billion euros, a figure that is only within the reach of US tech giants.

Following the presentation of results, the euphoria spread among the Asian stock markets (a region where microchip manufacturers are concentrated) and the Nasdaq, the reference technology index in the US, which places all hopes on AI after 'accumulate 18 months of falls due to cuts in the sector.

"Nvidia's results reaffirm that AI is not an exaggeration and mark a crucial moment not only for the company, but also for the technology sector in general", commented Josh Gilbert, market analyst at eToro yesterday. In fact, the stock market gains also picked up the surprise regarding the third quarter revenue forecasts, located at 16,000 million dollars (above the 12,600 expected). This figure is almost eight times the turnover of Nvidia just three years ago, when it was more focused on designing chips for the video game industry and self-driving cars.

Yesterday the founder and chief executive, Jensen Huang, confirmed the company's leap forward: "We are convinced that we are facing a new computational era. The corporate world is making a transition towards accelerated computing and generative AI", he assured. And the conviction that the company has of the brilliant journey that awaits it is demonstrated by its decision to buy back 25,000 million of its shares, a common operation when the same company considers that its value on the stock market can be even greater.

According to the results, Nvidia grows by selling microchips to ChatGPT and other AI firms, but mostly by selling its technology to data centers that process all the information. In fact, this last division contributes 75% of the income. And the key to the business is not only in the chip, but also in a computer that has up to 35,000 different components.

In fact, the aspect that worried the market was the shortage of all this hardware: a problem that already affected the automotive sector and that could resurface as a result of the boom in demand - Meta, Apple, Microsoft and Alphabet have also launched AI technology–. However, Nvidia assured yesterday that there is enough supply. Although the future of this kind of microchips does not only depend on this company: the manufacture is in the hands of the Taiwanese group TSMC.

At the same time, this also means that only two companies in the world share practically all the revenue for AI hardware. This is how so much interest from investors is explained. "These companies have aggressive growth models and that's why they attract so much attention. However, the future of the sector depends on other companies that are launching more energy-efficient chips", says Mateo Valero, director of the Barcelona Supercomputing Center, which will use Nvidia microchips to carry out AI tests with the Marenostrum 5 supercomputer.

In fact, analyst Dylan Patel, from Semianalysis, warned the Reuters agency yesterday that Nvidia's sales will moderate at some point. "Now companies are overinvesting in these chips because they don't want to take the risk of being left behind. But at some point, the real use of this technology will come to light and the landscape may change", he warned.