‘AI frenzy’ sparks new boom in tech stocks
Semiconductor maker sparked investor frenzy with unexpected results
A “frenzy” around artificial intelligence is driving a new tech boom, says PIE Funds chief investment officer Mike Taylor.
“We are definitely back into a bull market for the Nasdaq,” Taylor told Market Watch.
“It’s quite phenomenal actually, what’s happened in the last couple of months. Even in the last week, year-todate, the Nasdaq is up 30 per cent after a terrible 2022 performance.
“You compare that to the Dow and the S&P500, which are sort of broader indices, they’re basically flat for the year.”
The new tech boom was essentially being fuelled by a handful of big companies, he said.
The likes of Meta and Google owner Alphabet are both up by more than 100 per cent this year. And microchip maker Nvidia has seen its value soar almost 250 per cent so far in 2023.
“It’s definitely an AI frenzy,” Taylor said.
“As investors, we’re trying to understand what the benefits of this new technology might be for companies in terms of their profitability and their operating margin. Because what we’re being told, is that by implementing AI into your business, it could potentially reduce your worker headcount, improve your efficiency and improve your profitability.
“As investors, we’re scrambling to try to understand which companies are going to benefit from this the most.”
At the moment, that seemed to be the mega-cap tech stocks.
Picking which smaller companies and startups would make it through the pack was more difficult, he said.
“If we take Nvidia, for example, they had an earnings call last week where they mentioned ‘AI’ 87 times and as a result, the stock was up 25 per cent on the day,” Taylor said.
That meant the company’s market capitalisation soared by about US$184 billion ($304.8b) in one day to almost US$1 trillion.
Meanwhile, as tech investors focused on the longer-term future, the rest of the market was still struggling with concerns about inflation, high interest rates and the political theatre of the US debt ceiling saga.
An agreement was reached at the weekend but the deal still needs to get through Congress (tomorrow NZT).
“Undoubtedly there will be groups or factions within the Republican or Democrat party who won’t vote for it,” Taylor said.
“But it does seem likely that it will go through . . . investors are relieved that we’ve got through this yet again.”
Which semiconductor maker has gone from being a “chip wreck” around a year ago, dragging down the whole sector, to a sharemarket darling with skyrocketing market capitalisation in 2023?
That’s chip maker Nvidia (or NVIDIA as they’d like you to write their name) of course. Last week, the California company sparked investor frenzy as it reported way better results than anyone expected.
The rally added almost half a billion dollars to shares, which includes makers of the components Nvidia uses when it assembles graphics cards and other electronic devices around its chips.
As a result, Nvidia now dwarfs Intel, once known as Chipzilla due to its market dominance. Nvidia is headed towards becoming a trilliondollar company like Apple, Microsoft, Meta, Alphabet and Amazon. Intel’s market capitalisation has dropped from US$282 billion in 2020 to US$120b ($198.1b) now.
The giddy, stratospheric rise in Nvidia’s share price is due to its early work in artificial intelligence paying off handsomely. We might not quite know where AI will take us, but an there is an investor curse on any technology company’s house if they don’t announce generative models of some kind.
From a geek journo’s perspective, Nvidia’s been great to follow over the years. The company was set up by three engineers at a Denny’s in California in the 90s, the lore goes, because they thought graphical computing was the future. Wafting away the swirling mists of time reveals an interesting ride, at times bumpy, over the years for Nvidia.
Their first large-scale commercial product was the Riva TNT graphics card, which piqued market interest as it could accelerate both 2D and 3D imagery. It wasn’t that long ago that 3D graphics was an aftermarket addon that cost heaps, and it set the stage for the GeForce range of cards that have been very successful for Nvidia.
Nvidia focused on making graphics processors with lots of small “cores” that could handle large amounts of instructions in parallel. That’s much more difficult to make a good fist of than it appears, and general purpose processors went in a different direction trying to do more per ever-increasing clock cycle.
Long story short, we nowadays have both kinds of processors, but the highly parallel chips are very well suited for AI, and super-speed guessing of passwords — cracking — and of course, hyper-realistic gaming.
Nvidia’s cards were also very popular with cryptocurrency miners, who built “rigs” with lots of them installed. A few years ago, I was admiring a neatly-designed crypto miner in a plexiglass case, with eight Nvidia GeForce cards installed and very beefy power supplies to feed them.
High end graphics cards were almost impossible to source at the time, as crypto miners bought as many as they could.
Soon after, the giant crypto currency pyramid scam imploded, and with it, Nvidia’s share price as graphics card demand fell. Gamers rejoiced, however.
In March this year, Nvidia officially denounced crypto as adding nothing useful, but does that mean the environment can take a breather as there won’t be millions of graphics cards consuming vast amounts of electricity?
No, unfortunately. AI requires massive amounts of computing power. ChatGPT apparently was trained on a computer with more than 10,000 Nvidia cards. There’s going to be more of the same as every person and their virtual dog jumps aboard the AI train.
The level of innovation at Nvidia, as it goes after existing and evolving sectors, is nothing short of impressive. Nvidia’s Geforce NOW cloud gaming is developing and there’s already a provider in the region, Pentanet in Perth that’s about 8 millisecond pings away on an Orcon fibre connection.
Speaking of games, Nvidia has released its Avatar Cloud Engine for Games. This could be the killer application for AI, as it promises to add pseudo-intelligence for nonplayable characters in games among other things, and I’m sure nothing could possibly go wrong with that tech.
Nvidia is trying its hands on mobile chips and is getting ready to butt heads with Apple over which tech giant will control cars’ infotainment systems. Amazingly enough, infotainment systems are a crucial area of vehicles that car makers never realised they needed to own, and now it’s too late.
There are the Grace and Grace Hopper “superchips” as well, Nvidia’s foray into the data centre, piggybacking on AI. They have general-purpose processors in them, designed by British semiconductor architecture firm Arm, which Nvidia wasn’t allowed to buy for $66b as the deal gave regulatory watchdogs and national security agencies around the world acid reflux.
If it doesn’t become sentient and try to kill us all as some depressed researchers and futurists predict, what will chip makers pivot to when AI fizzles out?
It could be quantum computing and communications, provided the necessary milestones are reached and the devices can run at room temperature.
Actually, it’ll probably be quantum AI which Google’s already working on. If you’re a tech journalist, start the countdown for the next AI email inbox flood now. Yes, Nvidia has a finger in the quantum pie as well.