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AI stocks like Nvidia, Super Micro Computer and Broadcom rose nearly 20% this week.
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The rally came after executives from Oracle and Nvidia raised concerns about AI revenues.
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Oracle shares rose 24% after Larry Ellison sounded optimistic about the long-term potential of AI.
Artificial intelligence trading on the stock market has revived this week, with shares of AI giants including Nvidia, Super Micro Computer and Broadcom rising nearly 20%.
AI-related names and semiconductor stocks were in a slump after Nvidia reported second-quarter earnings two weeks ago. Nvidia shares fell sharply after the company failed to meet lofty expectations, leaving investors wondering how far the AI trade could go after a years-long hot streak.
Questions about the return on the billions of dollars that big companies have invested in AI led to a sell-off in the sector.
But the market recovered this week as major players individually addressed some of investors’ burning questions about what to expect from major AI investments.
As of Friday afternoon, shares of Nvidia and Oracle were up 16% for the week, while shares of Super Micro Computer were up 19% and Broadcom was up 21%.
The week’s rally was fueled by billionaire investor Larry Ellison, co-founder and chairman of Oracle, and Jensen Huang, co-founder and CEO of Nvidia.
Both executives expressed concerns about the return on investment in AI infrastructure, and investors appear to be taking them at their word.
Oracle’s Ellison: ‘This race will go on forever’
Oracle reported solid earnings after the market closed on Monday. During the earnings call, Ellison spoke about the immense potential of AI.
Ellison discussed the sustainability of spending on AI infrastructure, which has exploded in recent years, and stated that it will not stop.
“This race is endless, to build a better and better neural network,” Ellison said. “And the cost of that training is becoming astronomical.”
He added: “I think this is an ongoing battle for tech supremacy that will be fought over the next five years by a handful of companies and maybe one nation state, but probably more like 10. So this business is just going to get bigger and bigger and bigger. There’s no slowdown or shift coming.”
Following these optimistic comments, Oracle shares rose as much as 24% to their intraday peak on Friday.
Oracle gave investors at its analyst day this week a long-term forecast for annual revenue of $104 billion in 2029, with earnings per share expected to grow by more than 20%.
“This is consistent with the optimism the company has been tentatively hinting at for several months; this is the upside of expectations that we believe warrants continued multiple expansion,” KeyBanc analyst Jackson Ader said in a note.
Ellison said building an AI training model for cloud companies would cost more than $100 billion.
“That’s for the next four, five years for anyone who wants to play in that game,” he said. “That’s a lot of money, and it’s not getting any easier.”
That should be good news for Nvidia, the leading supplier of AI-enabled GPUs that cloud companies use to build their models.
Nvidia’s Huang: ‘You get 10x discount’
At a Goldman Sachs conference on Wednesday, Huang was asked directly about his concerns about the return on investment of clients’ AI spending. Huang gave a direct answer.
“The return on that is fantastic, because the demand is so high that every dollar they spend with us translates into $5 in rent,” Huang said of the cloud hyperscalers that buy his company’s chips. “And that’s happening all over the world, and everything is sold out.”
Additionally, Huang said companies were seeing huge cost savings with Nvidia’s GPUs thanks to the compute inflation found with CPUs.
By using Nvidia’s GPU accelerators relative to traditional CPUs, “you reduce the computation time by about 20 times, so you get a 10x savings,” Huang said.
Nvidia shares have risen 12% since Huang took the stage at Goldman’s conference on Wednesday morning.
The AI rally spread to the entire technology sector this week, with semiconductor stocks once again in the spotlight, rising nearly 10%.
Read the original article on Business Insider
