Artificial intelligence stocks have continued rushing forward in 2024, pushing technology stocks toward higher valuations. AI’s rally has also fueled a strong rally in the other pockets of the market.
Overall, the S&P 500 hit a fresh record high in June amid an overarching AI optimism. This has led Evercore ISI to up its forecast for the index. It is now expected to reach a year-end high of 6,000 points.
The brokerage firm’s analysts believe that while U.S. equities are priced at a premium, history shows that significant gains can still happen in “expensive markets.” The analysts highlighted that each historically expensive market had its unique path, influenced by factors such as time, price, earnings and breadth. They emphasized that valuation alone does not warrant selling, suggesting that other market dynamics are at play.
Several factors contribute to the current market’s high valuation. These factors encompass the anticipated impact of the AI revolution, the Federal Reserve’s lowering interest rates and a relatively short market duration with gains.
Moreover, the firm points to the potential for earnings growth in 2024. That is predicated on broad market support despite a few large-cap stocks driving much of the market’s performance.
In conclusion, Evercore ISI’s analysis indicates that despite the expensive nature of the market, there are several underlying factors that could propel the S&P 500 to significant heights by the end of the year. One is the robust demand for high-end AI chips.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD), a major player in AI chip, designs and produces high-performance processors and graphics cards. Known for innovation in computing and gaming, it attracts investors with strong growth prospects in data centers and AI.
Piper Sandler recently promoted AMD to the position of its top large-cap stock pick for the second half of 2024. The decision follows positive interactions with AMD’s management in Europe last week. The bank said it gained insights into the chipmaker’s strategic direction and market positioning.
AMD has been lauded for its MI300 accelerators, which are anticipated to generate over $4 billion in revenue this year. The company’s roadmap includes the launch of the MI325 later this year and the MI350 in 2025. These forthcoming chips are expected to feature advanced HBM3E memory, with the MI350 also incorporating CDNA4 technology and a 3nm process node. Additionally, AMD is preparing for the MI400 release in 2026.
Piper Sandler also foresees positive momentum in AMD’s server and PC segments. It expects these areas to contribute to the company’s growth trajectory. The analysts believe that AMD’s embedded business will reach its low point in the June quarter, setting the stage for a strong performance in the latter half of the year.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) manufactures semiconductors and infrastructure software solutions. Its diverse product portfolio and strategic acquisitions make it a robust investment in the tech and communications sectors
The chipmaker delivered a strong performance in its fiscal second-quarter earnings, surpassing analysts’ consensus estimates. The company reported adjusted earnings per share of $10.96, which exceeded the expected $10.84. Furthermore, Broadcom achieved revenue of $12.49 billion, outstripping the anticipated $12.03 billion.
The company’s impressive financial results were accompanied by an optimistic sales forecast for the fiscal year 2024. Broadcom projects approximately $51 billion in sales, which not only beats its previous forecast but also edges past the consensus estimate of $50.42 billion.
Broadcom’s stock price surged on the news. In response to concerns that the stock may be perceived as too expensive, the company has announced a 10-for-1 stock split scheduled for July 15.
Stock splits typically do not affect the intrinsic value of a company’s shares but are seen as a move to make the stock more accessible to a broader range of investors. They can also potentially promote further growth.
Nvidia (NVDA)
Writing an article about AI chip stocks and not including Nvidia (NASDAQ:NVDA) is not possible it seems. The company specializes in GPUs and AI technologies. Leading in graphics and data processing, it offers compelling investment opportunities in gaming, AI, and data center markets. It recently became the most valuable company in the world following a series of beat-and-raise quarters.
Nvidia maintained its dominant position in the AI chip industry by achieving the highest scores in the latest MLCommons benchmarks. The company outperformed competitors in all nine categories of the Training 4.0 test, which evaluates the performance of chips in training neural networks for various tasks.
The MLCommons consortium, which conducts multiple AI chip performance assessments annually, reported that Nvidia not only secured the top position but also claimed the second-best scores across the board.
This marks the third consecutive time Nvidia has outshined its competitors in these benchmarks without any close challengers. Notably, tech giants such as AMD, Intel (NASDAQ:INTC) and Google’s cloud computing division lagged significantly behind in the tests.
The Training 4.0 benchmark encompasses nine distinct tasks that measure the efficiency of tuning a neural network’s parameters. This process is critical for optimizing the network’s performance and is one aspect of neural network operations, with the other being inference, or the ability of a trained neural network to make predictions with new data, which MLCommons evaluates separately.
Hence, it looks like Nvidia’s dominant market position will continue to be unaffected for months and years to come.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.