Shares of AI-related semiconductor stocks Advanced Micro Devices (AMD 0.03%), Arm Holdings (ARM +2.71%), and Marvell Technology (MRVL +4.63%) rallied this week, up 12.2%, 18.7%, and 12.2%, respectively, as of the end of Thursday trading, according to data from S&P Global Market Intelligence.
AI-related stocks had taken it on the chin over the summer and the first part of September, as fears over recession and doubts about the longevity of AI-related investments took hold.
But this week, some in-line inflation readings and positive commentary from both tech executives and analysts alike spurred investors to buy the chip dip.
NASDAQ: ARM
Key Data Points
Cooling inflation and red-hot AI spend send chip stocks higher
AMD released its AI graphics processing unit (GPU) called the MI300 last year; it's taken off as a genuine alternative to industry leader Nvidia (NVDA +1.67%). Marvell is one of two chip names that makes custom ASICs that go into the AI accelerators designed by the cloud giants. And Arm's chip architecture is used in the iPhone and Macs, which are currently being infused with more AI and increasingly used in data-center servers. For instance, Arm is used in Nvidia's data-center Grace CPU, among others.
After the AI chip-stock pullback to begin September, AI names were primed to bounce on any good news -- and there was a lot of good news this week.
First, Goldman Sachs held its annual technology Communacopia conference, which virtually all leading tech executives attended, including those from AMD and Marvell, in addition to industry leader Nvidia.
To a T, virtually all these executives remained bullish on artificial intelligence (AI) continuing to improve and for investments in AI infrastructure to continue next year and beyond. Specifically, Nvidia CEO Jensen Huang said demand was so great for its products that customer conversations had gotten "tense" and "emotional" over getting enough supply.
AMD CEO Lisa Su also appeared at the conference, optimistically saying, "What has actually really surprised me is just how fast the technology is moving ... We're learning at an incredibly fast pace."
Meanwhile, leading database and cloud provider Oracle (ORCL 1.86%) held its earnings and conference call Monday evening. On the call, founder and Chairman Larry Ellison optimistically declared,
I think this is an ongoing battle for technical supremacy that will be fought by a handful of companies and maybe one nation-state over the next five years at least, but probably more like 10. So this business is just growing larger and larger and larger. There's no slowdown or shift coming.
Image source: Getty Images.
These bullish executive comments dovetailed with positive comments from the analyst community as well. Leading foundry Taiwan Semiconductor Manufacturing (TSM +1.97%) released its August revenue figures this week, with revenue up a robust 33% over the prior year. That puts the foundry on track to beat its third-quarter guidance, according to analysts at JPMorgan & Chase. And if TSMC beats its quarterly-revenue guidance, that implies outsized growth for these three names, given that TSMC manufactures the chips for each of the above companies.
Meanwhile, AMD received buy ratings from both Citigroup and UBS this week, with UBS calling it a "top pick" heading into 2025.
Arm also got a boost from analysts and industry commentators. First, Apple (AAPL +2.65%) held the release event for the iPhone 16. Over the weekend, the Financial Times reported the iPhone 16 would use Arm's V9 architecture, its most advanced -- and thus, most expensive -- architecture for on-device neural processing to fuel the iPhone's new Apple Intelligence capabilities.
In addition, Arm was named a "top pick" and given a $175 price target by analysts at Morgan Stanley -- more than 25% above today's stock price. Morgan Stanley noted that Arm has a chance for material growth in edge AI servers, which will see increasing demand in the future for low-power processing closer to where data is generated and used.
Along with widespread bullish AI commentary, this week's Consumer Price Index (CPI) and Producer Price Index (PPI) inflation reports showed inflation continuing to decline, putting the Federal Reserve on track to cut interest rates. The combination sent AI chip stocks rebounding hard off their near-term bottoms.
Still early innings for AI
Over the summer, older investors likely began to fear an AI growth slowdown, as was the case at the end of the internet bubble and subsequent bust 25 years ago. However, the industry commentary and TSMC results indicate an AI slowdown doesn't appear on the horizon anytime soon. When combined with moderating inflation and interest rate cuts likely coming soon, no wonder these AI chip favorites rebounded this week.
