AI Chip Rivalry: Nvidia Chases Apple with Historic High

Nvidia's shares experienced an impressive surge, ending the week at a record high, driven by growing investor enthusiasm for the increasing demand for artificial intelligence (AI). Nvidia's stock value rose by 8% compared to the previous week, edging closer to Apple's position as the most valuable company on Wall Street. This rally is based on recent statements by CEO Jensen Huang and partnerships by the chip manufacturer, highlighting the urgent demand for AI chips. The positive trend in AI chip stocks is alleviating Wall Street's concerns about an impending slowdown in AI hardware investments. According to a report by Goldman Sachs analysts, major technology companies might be forced to increase their AI-related investments, potentially driving the market beyond previous expectations. Technology giants Google, Microsoft, Amazon, and Meta have indicated they will continue their spending on AI infrastructure in the coming year, benefiting companies like Nvidia. Goldman Sachs forecasts that large tech companies' investments in AI capacities will reach a total of $215 billion in 2024 and $250 billion in 2025. A recent $6.6 billion funding round by OpenAI is also expected to benefit Nvidia and other hardware firms as AI model development continues to advance. JPMorgan analyst Harlan Sur forecasts a revenue growth of 6 to 8% for the semiconductor industry in 2024. He emphasized that he remains optimistic about semiconductor and equipment stocks, as expectations point to an improved supply and demand situation in the second half of 2024 and 2025, as well as stable or increasing earnings trends in 2024/2025. However, it is expected that investment activity will eventually plateau. The crucial question is when this will occur. While AI software is typically offered on a subscription basis, hardware represents a one-time purchase. Analysts warn that AI chip stocks might be in a bubble that could burst once the massive spending by large technology companies on AI infrastructure subsides. Indeed, recent business reports from tech giants reveal a growing gap between their enormous spending on AI infrastructure and their return on investment, testing Wall Street's patience. Shares of Google, Microsoft, and Amazon experienced declines last summer following the release of their quarterly reports, which showed billions in AI investments. DA Davidson analyst Gil Luria expressed to Yahoo Finance that he expects strong spending on data center infrastructures to continue this year and possibly next, but also that a peak in investment spending by major technology companies could be reached as early as the coming calendar year.