In February, a sharp rise in quarterly revenues reported by leading US manufacturers of semiconductor chips have further boosted the outperformance of the MSCI Semiconductor Industry index relative to the broader US stock market.
Valuations of the leading US chip designers have surged since the start of the artificial intelligence boom that began with the release of ChatGPT in the autumn of 2022.
The launch of ChatGPT marked an inflection point
ChatGPT took the use of so-called large language models – a branch of generative AI, which extends the capability of deep learning algorithms in generating new content – to a higher level.
In addition, ChatGPT developers democratised access to AI models through cloud services and mobile apps, making it much easier for other developers, companies, and individuals to use the technology.
The release of ChatGPT set off a race among cloud service providers and other technology companies to expand their datacentre infrastructure, software stacks, foundation models, and applications. Several leaders in the field have published outsized positive earnings revisions and seen remarkable stock returns.
Booming demand
The widespread use of semiconductor chips to train and run the large language models that underpin generative AI has created a level of demand for chips far in excess of even the most optimistic forecasts.
After a series of exceptionally strong earnings reports, it could become increasingly difficult for semiconductor manufacturers to continue to exceed market expectations.
Ultimately, the boom in valuations of the companies producing the AI infrastructure will depend heavily on whether the end users for the technology — businesses seeking to use it to boost their revenues or increase efficiency — get a satisfactory return on their investments.
Click here to read why Pam Hegarty, CFA, Senior Portfolio Manager for US Equities, sees 2024 as a crucial year in the development of the investment opportunity offered by artificial intelligence.
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