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Nvidia Corporation (NASDAQ:NVDA) has seen its stock prices more than double since the start of the year due to the boom in AI-related investments. However, experts warn of the cyclical nature of the semiconductor industry and potential slowdowns in the future.
What Happened: Chris Miller, a history professor at The Fletcher School at Tufts University, explained that the semiconductor sector has always experienced ups and downs, Business Insider reported on Friday. He highlighted that chip giants like Nvidia and Taiwan Semiconductor Manufacturing Co Ltd. (NYSE:TSM) have greatly benefited from the AI buildout, but this may not always be the case.
The concept of a semiconductor supercycle refers to sustained periods of growth and increased demand that can last several years.
“The boom in spending on AI infrastructure has been a major growth driver for the chip industry,” Miller said.
“If excitement and investment in AI slow, chip industry growth will slow, too.”
Despite the warnings, some believe it’s too early to declare a new supercycle. Thomas Rupf, chief investment officer at private bank VP Bank Asia, and Josie Ananto, a principal at EY-Parthenon’s strategy and transactions team, both see persistent demand and investment opportunities in the sector.
However, the success of Nvidia has attracted competition from big tech players like Meta (NASDAQ:META) and Google by Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), and startups like Groq. This could pose a threat to Nvidia, which designs but doesn’t manufacture its own chips.
Despite the competition, Nvidia is not standing still. In May, Nvidia CEO Jensen Huang announced the company would release new chips on a “one-year rhythm” instead of its traditional two-year release cycle.
Why It Matters: Nvidia’s stock valuation saw a significant jump, adding an impressive $330 billion to its market cap in just one day. This surge broke its previous record of a $277 billion gain, driven by Microsoft’s recent announcement of a significant rise in its AI-related spending for the fiscal year 2024, which is set to grow by 60% to $69 billion. This news led to a nearly 13% rise in Nvidia’s stock price, bringing its market capitalization to a remarkable $2.88 trillion. As a result, Nvidia has become the third-most valuable company in the world, behind only Apple and Microsoft.
However, the semiconductor rally has faltered in the second half of the year. The Invesco QQQ Trust Series QQQ, a fund that tracks the NASDAQ 100, is down more than 5% throughout the last month. In the last month, Dell’s stock is down 25%, Nvidia’s more than 15%, while AMD is down around 13%.
Nvidia Corp has unveiled significant updates to its software suite, aiming to streamline the integration of generative artificial intelligence for various businesses. The new releases include what Nvidia calls NIMs, or Nvidia inference microservices, designed to handle the logistical challenges of deploying AI technologies such as chatbots and voice recognition.
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Image via Shutterstock
This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
