Is the AI hype overblown?

CNBC Television
13 Mar 202406:48

TLDRThe discussion revolves around the performance and market dynamics of semiconductor stocks like NVIDIA and Broadcom, emphasizing their AI momentum and quality aspects. Concerns about the sustainability of their growth and the potential impact of reduced AI spending by tech giants like Google, Microsoft, and Amazon are raised. The conversation also touches on the upcoming NVIDIA GTC event and the expectations surrounding new chip announcements and collaborations.

Takeaways

  • 🚀 NVIDIA and META are considered momentum stocks, and they represent the essence of quality in the market, commanding a premium.
  • 📉 There is speculation about a potential breakdown in quality or momentum, with semiconductor stocks like Marvell and AMD experiencing week-to-date losses.
  • 💼 Broadcom and Marvell's recent earnings reveal weaknesses due to their exposure to the cyclical chip market despite their AI momentum.
  • 🔎 Broadcom's full-year target was not as high as expected, and Marvell guided weaker for the upcoming quarter, affecting their stock performance.
  • ⏱️ The timeline for the sustainability of demand for semiconductors is uncertain, with opinions varying widely on the length of the cycle.
  • 🌐 Major companies like Microsoft, Alphabet, and Amazon are significant drivers of semiconductor demand due to their large-scale infrastructure projects.
  • 🤖 The first wave of AI is currently dominated by NVIDIA, but the long-term impact and sustainability of the AI trend are subjects of debate.
  • 💡 Investors are advised to consider how companies are spending on AI and their ability to monetize it, with a focus on showing results sooner rather than later.
  • 📈 NVIDIA's upcoming GTC event is highly anticipated, with expectations for announcements on new chips, partnerships, and software monetization strategies.
  • 🏨 The GTC event has generated significant interest, filling hotels and creating hype around NVIDIA's dominant role in the AI ecosystem.
  • 🔄 There is potential for demand shifts in the AI chip market, with custom chips from companies like Amazon and Microsoft possibly drawing interest away from traditional offerings.

Q & A

  • What is the main characteristic of NVIDIA and META as stocks?

    -NVIDIA and META are both considered momentum stocks, and they represent the purest essence of quality in the market, which is why they command a premium.

  • What could make semiconductor stocks like NVIDIA and Marvell vulnerable?

    -Semiconductor stocks could be vulnerable if there is a breakdown in quality or momentum. The market has seen week-to-date losses, with Marvell down 9% and AMD down 5.5%, indicating potential signs of such a breakdown.

  • How did Marvell and Broadcom's recent earnings report affect their stock performance?

    -Marvell's stock was dragged down due to weaker guidance for the upcoming quarter, while Broadcom's decision to reiterate their full-year target, which did not meet market expectations of an increase, led to stock weakness.

  • What is the role of AI in the momentum of chip companies like NVIDIA?

    -AI plays a significant role in driving momentum for chip companies. NVIDIA, for instance, is launching new GPU architecture for inferencing, which accounts for 40% of their revenues. However, the sustainability of this momentum depends on the return on AI spending, as major customers like Google, Microsoft, and Amazon are cautious about their AI investments.

  • What is the potential impact of a lack of return on AI spending?

    -If the return on AI spending is not demonstrated in the near future, companies might cut their capital expenditure budgets, leading to a shift in the momentum trade and potentially less demand for AI chips.

  • How do large tech companies like Microsoft and Alphabet influence the semiconductor market?

    -Large tech companies are significant drivers of the semiconductor market as they spend billions of dollars to build out infrastructure, requiring semiconductors to do so. However, the持续性 of this spending is uncertain and could impact the cyclical nature of the chip market.

  • What is the potential election risk surrounding semiconductors?

    -The election risk surrounding semiconductors refers to the potential policy changes that could affect the industry, such as trade regulations or subsidies, which could have significant impacts on the market dynamics and company operations.

  • What is the significance of NVIDIA's upcoming GTC event?

    -NVIDIA's GTC event is significant as it is their first live event in five years and is expected to draw a large audience. The event will likely feature comments on new chips, collaborations, and strategies for monetizing software, which is crucial for the company's ecosystem.

  • How does the price of NVIDIA's new AI chips compare to their previous offerings?

    -The new AI chips, such as the B-100, are priced 30% higher than the H-100, which could impact demand. There may be a shift in demand towards custom chips from companies like Amazon and Microsoft.

  • What is the general sentiment on Wall Street regarding Broadcom and NVIDIA?

    -The general sentiment on Wall Street is bullish, with Broadcom reiterating a buy price target of $1,560. Despite the hype and positive sentiment, there are concerns about the sustainability of the momentum and the potential for a reversal.

  • Is there true competition in the AI chip market, particularly in the training process?

    -In the training process, there is currently no true competition for NVIDIA. However, in the inferencing stage, there could be more competition, although the technical side of the chips world might have a different perspective.

Outlines

00:00

📉 Market Dynamics of Quality and Momentum Stocks

The paragraph discusses the market's perception of NVIDIA and META as both momentum and quality stocks. It highlights the premium the market pays for quality in the current environment and speculates on the potential vulnerability of chip stocks in the event of a breakdown in quality or momentum. The discussion includes specific losses experienced by semiconductor companies like Marvell, AMD, Micron, and Broadcom. Kristina Partsinevelos joins the conversation to provide insights, noting the exposure of these companies to the cyclical chip market despite their AI momentum. The conversation also touches on the earnings reports of Broadcom and Marvell, the hype around custom chips, and the potential risks associated with the timeline of AI spending by major companies like Google, Microsoft, and Amazon.

05:01

🚀 NVIDIA's Dominant Role and AI Event

This paragraph focuses on the anticipation surrounding NVIDIA's upcoming AI event, GTC, which is expected to highlight the company's dominant role in the AI space. The event is generating significant hype, with the company renting out the S.A.P. Stadium and all nearby hotels being fully booked. The discussion anticipates comments on new chip releases, collaborations, monetization of software, and the surprising success of the inferencing stage, which contributes to 40% of the data center revenue. There's also speculation about the potential demand shift towards custom chips from companies like Amazon and Microsoft, and how this could impact NVIDIA's market position. The conversation concludes with a discussion on the potential competition and investment alternatives to NVIDIA.

Mindmap

Keywords

💡Momentum Stocks

Momentum stocks refer to shares of companies that have shown a strong upward price trend over the past few months. In the context of the video, NVIDIA and META are identified as momentum stocks, which suggests that they have been performing well in the market due to positive investor sentiment and high trading volume.

💡Quality

In the context of the video, 'quality' refers to the financial performance and market position of a company, often indicated by strong earnings, steady growth, and robust business fundamentals. Quality companies are typically those that can maintain their performance even in uncertain market conditions.

💡Chips

In the technology and semiconductor industry, 'chips' refer to microprocessors or integrated circuits that are essential components in electronic devices. The performance and innovation of these chips can significantly impact the capabilities of the devices they are used in.

💡A.I. (Artificial Intelligence)

A.I. refers to the simulation of human intelligence in machines that are programmed to think, learn, and problem-solve. In the context of the video, A.I. is a key driver for the demand of certain chips and is central to the growth strategies of companies like NVIDIA, Google, Microsoft, and Amazon.

💡Earnings

Earnings refer to the profit a company makes over a specific period. In financial analysis, earnings are a critical indicator of a company's financial health and profitability.

💡Cyclical Market

A cyclical market is one that is affected by economic cycles, such as expansions and contractions. Companies operating in cyclical markets tend to experience fluctuations in their revenues and profits based on the overall health of the economy.

💡CapEx Budgets

CapEx, or capital expenditure, budgets refer to the funds allocated by companies for investments in physical assets like property, industrial buildings, or equipment. These investments are typically aimed at enhancing a company's long-term productivity and efficiency.

💡Monetize

To monetize refers to the process of generating income from a product, service, or asset. In the context of the video, it is about how companies can convert their investments in A.I. and chip technology into profitable business models.

💡Election Risk

Election risk refers to the potential changes in government policies or regulations that could impact the business environment and market conditions as a result of political changes, such as elections.

💡GTC

GTC stands for GPU Technology Conference, which is an annual event hosted by NVIDIA where they showcase their latest advancements in A.I. and chip technology. It is a significant event for the industry, attracting global attention and highlighting the company's leadership in the field.

💡Inferencing

In the context of A.I. and machine learning, inferencing refers to the process where a trained model is used to make predictions or decisions based on new input data. It is a critical component of A.I. applications and is often distinguished from the training phase, which involves learning from large datasets.

Highlights

NVIDIA and META are considered momentum stocks and represent quality investments.

The market is currently paying a premium for quality and momentum stocks like NVIDIA and META.

There is speculation about a potential breakdown in quality or momentum, which could make chip stocks like NVIDIA and Marvell vulnerable.

Week-to-date losses in the semis sector show Marvell down 9%, AMD down 5.5%, Micron down 4%, and Broadcom down 3.5%.

Broadcom and Marvell's recent earnings reveal exposure to the cyclical chips market despite their AI momentum.

Marvell guided weaker for the upcoming quarter, affecting its stock performance.

Broadcom did not raise their full-year target as many expected, leading to stock weakness.

The momentum argument for chip companies like AMD is complicated by their exposure to other market facets.

NVIDIA is launching new GPU architecture (H200 and B100), which could drive growth but faces uncertainty in AI spending.

Tech giants like Google, Microsoft, and Amazon are cautious about their AI spending, seeking a clear return on investment.

There is a question about the sustainability of AI spending and its impact on momentum stocks in six months.

The semiconductor stocks have benefited from positive catalysts due to significant spending by companies like Microsoft and Alphabet.

The long-term impact of AI and cloud optimization could persist for decades, similar to the internet's transformation post-dotcom bubble.

NVIDIA's upcoming GTC event in San Jose is highly anticipated, marking their first live event in five years.

NVIDIA's event is expected to include comments on new chips, collaborations, and monetization strategies for their AI ecosystem.

The demand for new AI chips may shift towards custom chips from companies like Amazon and Microsoft.

According to UBS, NVIDIA's stock typically increases by 5-6% post-GTC events on a six-year average.

There is discussion about the potential overvaluation and risk in the semiconductor sector due to the current bullish sentiment.

The election risk surrounding semiconductors is highlighted as a primary concern from a fundamental aspect.

Broadcom reiterated a buy price target of $1,560, indicating continued bullish sentiment around the stock.

The challenge lies in understanding the first wave of AI and its potential long-term impact on the economy.

Investors are advised to consider how companies are spending on AI and their ability to monetize it effectively.

There may be better ways to catch the second wave of AI, leading to money coming off the table for some companies.