New York —
Big Tech, once the market leader, is being overshadowed by gains from the new stars of the artificial intelligence boom: semiconductor chipmakers.
Nvidia shares (NVDA) climbed 9% Thursday after strong earnings in which the chipmaker not only doubled its sales, but also assured investors of blockbuster growth. That’s sending other chipmaker stocks – and the whole market – higher. The tech-heavy Nasdaq was up 1.57% in midafternoon trading and the S&P 500 rose 0.82%.
Shares in semiconductor companies such as Intel continue to surge, benefitting from their role in the supply chain for the AI buildout. However, Big Tech stocks like Microsoft and Meta have dropped in the last year as those companies pour billions of dollars into building AI infrastructure.
The S&P 500 is up 13% this year, adding roughly $7.6 trillion in market value. Chip stocks have accounted for 37% of those market value gains, according to Mike O’Rourke, chief market strategist at JonesTrading.
The semiconductor industry accounts for nearly a third of the S&P 500’s market value, according to Stifel, an investment bank. Chip and tech hardware stocks account for nearly 45% of the Nasdaq 100’s.
But the market’s reliance on chip stocks presents its own risks.
“If the new market leaders, semiconductor firms, also start to struggle, the stock market would be in big trouble,” James Reilly, senior markets economist at Capital Economics, said in a note.
The companies making the “picks and shovels” of for AI infrastructure – the hardware, products and services to build data centers – are reaping the benefits of the investment boom.
Chipmaker Micron Technology (MU) is up 220% across the past year, and in May surpassed $1 trillion in market value, making it the ninth-largest company in the S&P 500. In South Korea, SK Hynix and Samsung have catapulted the benchmark Kospi index to gains of more than 120% this year.
Meanwhile, Microsoft shares have fallen 6% since hitting a record high in October last year. Though Nvidia’s recent earnings helped boost broader tech, Alphabet and Amazon shares are still down from recent peaks. Apple is treading water, but it’s still down almost 7% since a record high earlier this month.
While chipmakers have been clear winners, investors continue to raise their expectations for companies’ earnings. The higher the bar is raised, the less patience there is for disappointment.
AI trades like semiconductor chips are echoing the mania of the late 1990s, Thomas Carroll, an equity market strategist at Stifel, wrote in a note. And while Carroll said 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 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.
“We have seen other cracks over the past year… and they have not upset the apple cart for very long. So, it would be foolish to try to say that the AI bubble is about to burst,” Matt Maley, chief market strategist at Miller Tabak + Co, said in a note.
“However, it is 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,” Maley said.
CNN’s Ramishah Maruf contributed to this report.
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