Investors are closely monitoring the significant investments that major technology companies are making in artificial intelligence (AI) infrastructure. The key question being raised is whether these investments will yield substantial returns, especially amid concerns that previously announced capital allocation plans may face cuts or delays. However, indications suggest that spending on AI is not only continuing but is also accelerating.
Nvidia has emerged as a primary beneficiary of this investment wave, as its high-performance chips are widely used in new data centers around the globe. Despite facing pressure on its stock due to worries about potential slowdowns in AI infrastructure spending and regulatory challenges related to export restrictions, industry experts believe the fears surrounding capital spending might be overstated. Jonathan Gray, the chief operating officer at Blackstone, expressed optimism in a recent interview, stating that the overall demand for AI infrastructure remains robust. This aligns with assurances from major Nvidia clients like Meta Platforms, Microsoft, and Amazon, who are expected to continue or even increase their capital expenditures.
Moreover, Nvidia’s dependence on the Chinese market appears to be a double-edged sword. Though sales to China fell from 17% to 13% of total revenue in the last fiscal year, recent developments indicate a possible relaxation of AI chip export curbs. If reports about former President Trump considering the overturning of these restrictions are accurate, it could alleviate some concerns for Nvidia, as any potential impact on the company’s earnings might already be reflected in its current stock price.
In parallel, Taiwan Semiconductor Manufacturing Company (TSMC) has positioned itself as another key player in the AI landscape. With Nvidia as one of its critical clients, TSMC is seeing a surge in demand for its semiconductor products. The company’s revenue jumped 42% in the first quarter, with net income experiencing an impressive year-over-year increase of 60%. Analysts project a further revenue rise of nearly 40% in the current quarter.
Despite the growth potential, TSMC shares have also witnessed a decline of over 10% this year, prompting a favorable valuation with a forward price-to-earnings ratio under 20. Both Nvidia and TSMC have faced downward pressure in their stock prices amid concerns of slowing growth in the AI sector. Nevertheless, evidence suggests that the expansion of AI is not a temporary fad but a fundamental shift, as AI technologies will likely become integral to numerous consumer and enterprise applications.
Considering the broader potential for AI development, many investors may find comfort in the current valuations of both Nvidia and TSMC, viewing them as solid long-term investment opportunities in this evolving technological landscape.