Move over, Tesla – is AI the new trending tech for investors?
At the end of February, Nvidia exceeded US$2 trillion in market value and boosted the S&P 500 Index as AI continues to be the focal point of the future for technology.
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The backstory: Nvidia is a US tech firm founded in 1993, and it's one of the world's most valuable companies. As artificial intelligence (AI) booms, Nvidia's chips have become a vital component used to train and build this technology. The company supplies major tech giants like Amazon, Microsoft, Google, Meta and Dell. The demand has been so great that it's even led to a chip shortage and a long wait list for its semiconductors. So naturally, the stock is skyrocketing, with some experts calling it "the single most important stock behind the artificial intelligence trend currently fueling the market."
More recently: Last month, Nvidia surpassed Google's parent company, Alphabet, and Amazon in market value, pushing its total market value to US$1.83 trillion. Nvidia is now the third-largest US company, right behind Apple and Microsoft.
The development: At the end of February, Nvidia exceeded US$2 trillion in market value and boosted the S&P 500 Index as AI continues to be the focal point of the future for technology. This is reminiscent of the spike in Tesla's stock when electric vehicles (EVs) were all the rage for future tech back in 2017. But AI has now steamrolled over investor interest in EVs. The EV market is now slowing in demand and production, and Tesla's stock has dropped more than 50% since its peak in 2021. So, investors are being advised to be cautious about throwing all their money into Nvidia because it's not clear if AI stocks, even though they're soaring now, could take the same route as EV stocks in the future.
Key comments:
"There's going to be a period eventually where the companies that are spending on AI need to realise some return on investment. You've certainly got some time before there's this moment of truth for the AI craze," said Tim Murray, multi-asset strategist at T Rowe Price.
"We have seen time and again that when investors fall in love with the idea of the technology innovation du jour, logic takes a back seat," Adam Sarhan, founder and CEO of 50 Park Investments, said in an interview. "And when emotion takes over, sky is the limit."
"If you really believe in this AI frenzy, you can visualize a future 10 years from now where AI is embedded in a lot of places, and you need these massive systems running chips that can only be delivered by Nvidia," said Sameer Bhasin, principal at Value Point Capital. "Even if there's a perception of a pause in buying, the stock will get hit."
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