Why the AI ​​spending boom won’t end like the tech bubble of the 1990s

Why the AI ​​spending boom won't end like the tech bubble of the 1990s

Nvidia (NVDA) stock reached an all-time high Thursday morning with another strong quarterly earnings report that pushed the stock’s year-to-date gains nearly 230%.

However, this meteoric rise will not meet an end as the network-building processes, which have yet to falter The technology boom of the 1990sAccording to some on Wall Street.

“Today, we believe there are many examples of companies achieving a return using generative AI through product improvements, productivity gains, or outright cost reductions,” Jefferies stock analyst Mark Lipasis wrote in a note to clients Thursday.

In contrast, the 1990s witnessed companies investing in Field of Dreams-esque “Build it and they will come,” said Lipasis, who was hopeful. Today, artificial intelligence is changing business expectations.

“The demand for our data center platform for AI is massive and widespread across industries and customers,” said Jensen Huang, founder and CEO of Nvidia, on Wednesday.

“Our demand view extends into next year. Our supply over the next few quarters will continue to pick up as we reduce cycle times and work with our supply partners to add capacity.”

NVIDIA CEO Jen-Hsun Huang gives a speech about artificial intelligence and gaming during Computex Taipei at the World Trade Center in Taipei, Taiwan, Tuesday, May 30, 2017. (AP Photo/Chiang Ying-ying)

Nvidia CEO Jensen Huang gives a speech about artificial intelligence and games during Computex Taipei at the World Trade Center in Taipei, Taiwan, Tuesday, May 30, 2017. (Chiang Ying-ying/AP Photo)

Nvidia’s second-quarter revenue totaled $13.51 billion, up 101% from a year ago and well above Wall Street’s forecast of $11.04 billion.

In the 1990s, companies like CSCO, Oracle (ORCL), and Intel (INTC) saw their share prices soar as exuberance grew about the future prospects of chipmakers.

The New York Times even named Cisco was the “leader” in the stock market in 2000. But less than a year later, the company cited a macroeconomic slowdown as it cut jobs and turned profits into losses.

Thomas Russell, then Associate Professor of Economics at Santa Clara University, he told the Times In 2001, the Cisco slowdown served as a “wake-up call” for the semiconductor industry, indicating that the roles Cisco had played in moving the economy had not changed.

All three stocks will drop about 80% as the dotcom bubble pops.

In July, Tony DiSpirito, chief investment officer of global underlying equity firm BlackRock, called the demand “really real” at a media roundtable, and said earnings growth from AI was “just coming.”

Indications that demand is outpacing Nvidia’s supply abounded in earnings calls this quarter.

In July, Elon Musk, CEO of Tesla (TSLA), said the company would “take Nvidia hardware at the same speed that Nvidia will give us.”

During recent earnings calls, big tech giants Amazon (AMZN) and Alphabet (GOOGL) also indicated that Nvidia GPUs are powering some AI projects at their respective companies. Meta said the innovative AI keeps users on the app longer and generates additional revenue.

“Although we are aware of emerging competition from major cloud service providers (i.e. constrained/on-premises solutions) as well as other commercial semiconductor suppliers,” Toshia Hari, managing director of Goldman Sachs, wrote in a research note Thursday, “we expect Nvidia to maintain It will maintain its position as the accelerated computing industry benchmark for the foreseeable future due to its competitive moat and the pressing need that customers are developing/deploying increasingly complex AI models.

Huang estimates that there are about $1 trillion worth of data centers installed in cloud and enterprise software systems. He said capital spending in those industries is shifting to building accelerated computing capabilities and generative AI capabilities, but that spending is about $250 billion, which indicates that the shift is far from over.

“This is not a matter for the short term,” Huang said. “This is a long-term shift in the industry, and we’re seeing both of these platform shifts happen at the same time.”

Josh Schafer is a reporter for Yahoo Finance.

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