AI Rally Expands Beyond Nvidia as Investors Bid Up Hardware

(Bloomberg) — They may lack the pure-play allure of Nvidia Corp., but hardware firms that provide the infrastructure for artificial intelligence computing are becoming the next hot trade.

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While the likes of Micron Technology Inc., Super Micro Computer Inc. and Dell Technologies Inc. have been rewarded for proven results, expectations are building ahead of the next earnings season. Nearly half the stocks on the Philadelphia Semiconductor Index have jumped at least 10% already this year, pushing the gauge’s price to sales ratio to its highest level in at least two decades.

“The trick is recognizing who’s really monetizing” artificial intelligence, said Michael Sansoterra, chief investment officer at Silvant Capital Management LLC.

Read more: Micron Sees Biggest Rally Since 2011 After AI Boosts Outlook

The gains underscore a trend that’s been brewing in the AI space, as investors seek out stocks that can possibly replicate the eyepopping returns of Nvidia — which remains the only game in town when it comes to the market for processors that power AI workloads.

But many other components are involved, including memory chips, servers and networking components. Not to mention the equipment used to manufacture the chips themselves.

“It’s getting more competitive,” said Brian Mulberry, a client portfolio manager at Zacks Investment Management Inc. “There’s other ways that you can access the excitement and energy in the sector.”

Micron shares are up by about 30% in the last month, outpacing Nvidia Corp.’s 17% gain. The memory chipmaker has been on a tear since reporting earnings that included a strong sales forecast signaling high demand for AI software.

Dell jumped to a record high in early March after demand for its information technology equipment used in AI work drove sales and profit above Wall Street expectations.

Super Micro Computer, a maker of servers, is up 18% this month after it was added to the S&P 500 Index. The company, which reports earnings May 2, will have to live up to expectations that it’s grown revenue more than 200% in the quarter to keep its rally going.

Still, while the rally has broadened, some chipmakers attempting to catch up with Nvidia such as Broadcom Inc. and Advanced Micro Devices Inc. have been under additional pressure as they continue to lag the industry leader. Broadcom slumped earlier in March after earnings disappointed, while AMD’s revenue forecast in January was downbeat. It has recently been weighed down by a report that China will limit use of its chips.

Read more: Nvidia Traders Find Reasons to Worry Beyond Sky-High Stock Price

And with Nvidia still facing sky-high expectations, for some bulls it may be time to identify the next big winner in the AI wave.

“There’s every reason to continue to believe that Nvidia will go higher, but it’s not going to have another 100% return form here,” said Mulberry. “Looking ahead three years, they might actually get a better return on investment.”

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Shares in video game retailer Gamestop Corp. were poised for the biggest decline in nine months after one of the original meme stocks reported a plunge in revenue. The drop comes after the stock benefited from a run-up on hopes the Federal Reserve would likely cut interest rates this year.

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