AI stocks saw a significant surge this past week due to broad-based enthusiasm and key announcements. Major companies like OpenAI and Alphabet (NASDAQ: GOOGL) made impactful announcements, with OpenAI releasing a new model and Google integrating AI across its products. This has led to increased interest and investment in companies with AI exposure.

Let’s look at which stocks saw the biggest gains recently, including Taiwan Semiconductor, NVIDIA (NASDAQ: NVDA), Super Micro Computer (NASDAQ: SMCI), Celestica (NYSE: CLS), Dell (NYSE: DELL), and Broadcom (NASDAQ: AVGO).

Why AI Stocks Saw Big Gains This Week

The battle over whether AI stocks are now overvalued comes down to whether the current investment in the space can continue. Bulls argue that with exponential improvement in model quality, the biggest technology companies will be forced to invest at unprecedented rates while bears argue that spending levels will need to fall as companies aren’t seeing enough revenue from their massive investment in AI projects.

This week, OpenAI and Google both made major AI announcements. OpenAI unveiled its 4o Model which features improvements like real-time language translation. Meanwhile, Google hosted its I/O Event that put AI at the forefront of almost all their products including Search, Android, and even Gmail.

The biggest winners from these announcements are companies that stand to see even more gains from the growth of AI inferencing. So far, most AI revenue has gone to training models. That’s a market that NVIDIA has had a lead in, and it requires more general-purpose graphics processors. However, inferencing is actually “running” AI models. As companies like Google build AI into their consumer products, inferencing demand should explode.

Winners from inferencing may look different than what we’ve seen in AI so far. For example, Google announced its new Trillium chip which is custom-built by Broadcom to power many of the AI features it announced. With Broadcom working with some of the largest hyperscalers to build accelerators that will handle inferencing workloads, any massive consumer adoption of AI products should benefit them.

Another winner from this should be a company like Celestica. Last weekend we called it our top AI stock for May, and it proceeded to jump more than 8% the day following Google’s announcement.

Finally, server companies like Super Micro Computer and Dell jumped this week as well. While that jump is likely explained by positive research on the AI server market from Morgan Stanley, a growth in inferencing puts another tailwind at their backs.

Transcript:

Eric, sticking with the investor’s favorite topic of the year, AI, we’ve seen an absolutely ripping month for AI stocks.

Why did AI stocks go up so much this month?

I mean, there was some news. We saw GPT-4 release a new model. There’s always news out of individual companies, but what we’re seeing is a broad-based enthusiasm jump. What happened?

Yeah, I mean, so we’re looking at the numbers right now. I’ll just cover some of them. Taiwan Semiconductor in the past five days up 5%.

NVIDIA, 6%.

Supermicro, 15%.

Celestica, 6%.

Dell, 9%.

Broadcom up 9%.

And the biggest reason for this is really enthusiasm around announcements. OpenAI announced a new model that features some really cool things like real-time translation apps.

And then we also saw Google host their IO event, where basically every feature from the company, from Android phones to Gmail to just about everything, even search, is now going to be AI first.

So the big news here is we’re about to see a massive battle starting where consumer companies are trying to entrench AI across their products.

We’ve seen it with meta-making investments. We’re about to see Apple partnering, it’s believed, with OpenAI.

And what’s going to happen is so far, all the AI revenue to companies like NVIDIA has largely come from training these AI models.

But there’s a second hand. Once your model is trained, you need to do something called inferencing, which is essentially running the AI itself.

What that does is it creates another revenue opportunity. Now, the dynamics for inferencing are going to be a little bit different than they were for training.

So if you’re looking for companies that have the most upside of this consumer AI, these apps take off, I would look to a company like Celestica, which is an ODM and has great relationships with Google.

I would look at Broadcom, which builds the custom TPUs for a company like Google that are going to be used for a lot of this inferencing.

And I would also keep in mind this is going to be just another demand driver for server companies like Supermicro and Dell, and that’s part of the reason that those two companies in particular were up a lot this week.

 

 

 

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