The AI boom isn’t over yet, here’s why

13 May 2024 - 15:00

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AI-related stocks are once again nearing their highs, while many are wondering whether they should take profits or remain exposed to risk

The AI boom isn't over yet, here's why

The recent contraction in the prices of securities related to the artificial intelligence market, together with the first attempts at recovery, has attracted the attention of traders and investors. Is an opportunity being created or has a sharp decline begun after years of exponential growth? Let’s take a look at the data.

AI Stocks: A Look at NVIDIA

Looking at the artificial intelligence market, a first point of reference for the sector is, without a doubt, the company NVIDIA, whose share price, compared to the lows of the year, has grown by almost 90%. The price contraction recorded starting from the first days of April proved to be a flash in the pan and, after a 20% drawdown compared to the highs, the company’s share price began to rise again, surprising many. SIi expects the company’s earnings to be reported on May 22, so the market will have to wait a little longer to see if fundamental expectations will confirm the share price growth. In any case, the stock markets expect triple-digit growth in profit, definitely one of the most promising estimates among those of the Magnificent 7, which on average expect growth above 30%, according to Bloomberg data. Being the share of the AI sector with the largest capitalization, the strong upward push in price has driven the various indices and funds, and in fact, it continues to be one of the best-performing periods for the latter.


What to expect from the semiconductor industry?

Getting to the heart of the semiconductor sector, which together with the social media sector represents one of the most followed when it comes to artificial intelligence, we note a generalized confirmation of growth expectations, taking for example other major players such as Broadcom (AVGO), Marvell Technology (MRVL), AMD (NASDAQ: AMD) and Micron Technology (MU). Looking at semiconductor indices, the situation becomes particularly interesting. The MSCI ACWI IMI Semiconductors & Semiconductor Equipment index, used as a benchmark by many funds, recorded a performance of -2.75% in the last month, a loss not seen for months; to be precise, from April of the previous year (2023). A similar consideration can be made by considering other companies, not present in the semiconductor sector but linked to artificial intelligence, such as Alphabet (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Meta Platforms (META), companies whose earnings estimates remain positive and growing, but which on the stock market are recording a significant drop in price compared to the average of recent months.

Have we reached the peak?

According to analysts at Bank of America, an attractive average P/E ratio for these companies (ex. NVIDIA) of 24 times earnings has been created thanks to the recent market downturn. Experts, therefore, remain optimistic as growth estimates for the sector are expected to increase sharply not only for 2024 but also for at least the next four years.

Original article published on Italy 2024-05-13 07:46:00. Original title: Perché il boom dell’AI non è ancora finito

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