Folks, I almost spilled my coffee reading this one. Big Tech, the market leader for so long, is being overshadowed by the new stars of the artificial intelligence boom: semiconductor chipmakers. I mean, who wouldn’t want to invest in companies that make the “picks and shovels” of AI infrastructure? Nvidia shares climbed almost 9% on Thursday after strong earnings, and other chipmaker stocks are following suit. The tech-heavy Nasdaq rose 1.57% and the S&P 500 rose 0.72%. It’s like the whole market is riding the chipmaker wave.
The companies making the hardware, products, and services to build data centers are reaping the benefits of the investment boom. Chipmaker Micron Technology is up 220% this year, and Marvell Technology is up 185%. Intel is up 150%. It’s like these companies are printing money. And the semiconductor industry accounts for nearly a third of the S&P 500’s market value. That’s a lot of power in one industry.
But, bless their hearts, Big Tech stocks are still trying to keep up. Microsoft shares are up just 4% this year, and Alphabet and Amazon shares are up about 8% and 11%, respectively. Apple is up about 16%, but it’s still trailing far behind the chipmakers. I mean, what’s going on here? Can’t these tech giants keep up with the times?
The market’s reliance on chip stocks presents its own risks, of course. If the new market leaders, semiconductor firms, start to struggle, the stock market would be in big trouble. James Reilly, senior markets economist at Capital Economics, said as much in a note. But for now, investors are betting big on AI, and chipmakers are the clear winners.
You can’t make this stuff up. A popular exchange-traded fund tracking semiconductor chip stocks is up 70% this year, while an ETF tracking the so-called Magnificent Seven – a group of Big Tech stocks – is up just 4% this year. It’s like the market is saying, “Hey, Big Tech, you’re so last season.” Somewhere in Atlanta, a producer thought this sounded terrifying, and now we’ve got a full-blown chipmaker frenzy on our hands.
The higher the bar is raised, the less patience there is for disappointment. Thomas Carroll, an equity market strategist at Stifel, wrote in a note that AI trades like semiconductor chips are echoing the mania of the late 1990s. And while he’s staying long on these stocks, he has his “eyes wide open” about a potential shift in sentiment. Specifically, if Big Tech’s spending on AI shows signs of slowing, which could hit chipmakers’ future profits.
Investors have gotten a glimpse of what nerves about chip stocks can do to the market. When Broadcom, a semiconductor giant, reported earnings in early June, its forecasts for chip revenue in the third quarter slightly missed expectations. Investors sent its shares down almost 20% across the next two days as a result. Matt Maley, chief market strategist at Miller Tabak + Co, said it would be foolish to try to say that the AI bubble is about to burst. However, it’s still important to point out that these cracks have indeed appeared, and thus investors will want to keep a close eye on how these developments proceed going forward.
In conclusion, the chipmaker wave is still riding high, and investors are betting big on AI. But, as with all things, caution is key. The market’s reliance on chip stocks presents its own risks, and a potential shift in sentiment could hit chipmakers’ future profits. So, let’s all just take a deep breath and enjoy the ride, shall we? After all, as the saying goes, “mo’ money, mo’ problems” – and right now, chipmakers are making a whole lot of money. 😊
Armchair patriot. Believes in the free market, cold beer, and that there’s always a guy named George behind every CNN segment.
Former remote-throwing champion turned #1 couch commentator on liberal panic in the media. Born in Texas (or so his mug says), he earned a degree in Fake Newsology & Beer Philosophy from YouTube University.
