Nvidia, AMD, Micron Skyrocket 44%, Surpassing S&P 500’s 25% Growth in AI Surge
As demand for generative AI grows, Internet infrastructure stocks soar with 44% returns, led by Nvidia, AMD, and Micron. This is better than the S&P 500’s 25% gain.
Our Internet Infrastructure Stocks theme includes companies that sell hardware and software for server processors, graphics units, memory, and networking equipment. This theme has returned over 44% so far this year, while the S&P 500 has gained 25% over the same period.
The theme had a strong run, thanks to people’s interest in generative AI technologies. Companies that produce accelerated computing chips, such as Nvidia and AMD, and other companies in the computing ecosystem, such as memory makers like Micron, have experienced significant gains.
Following the U.S. election results earlier this week, tech stocks, including names in artificial intelligence, have also experienced a slight increase in value. If you wish to participate in the U.S. elections, consider investing in stocks that support Trump.
If Donald Trump wins the election in 2024 and the Republicans take over Congress, it could be very good for tech companies that are investing a lot of money in generative AI.
Biden’s administration aimed to closely monitor AI development and even issued an order establishing new reporting guidelines for AI companies. On the other hand, Trump appears to be solely focused on reducing red tape and advocating for less regulation.
This could make compliance issues easier to deal with and speed up innovation for tech companies and startups. This would increase demand for AI infrastructure parts made by companies like Nvidia, AMD, and Micron.
Another indirect benefit for AI projects could be Trump’s efforts to boost energy production and fossil fuel supplies, potentially leading to increased availability and lower costs of electricity. This is because AI data centers use a lot of energy.
With a 50-basis-point cut in September, the Fed made its first interest rate cut in almost four years. It made yet another 25-basis-point cut yesterday. The top federal funds rate is now between 4.50% and 4.75%, but it can still go down even more.
Even though the president doesn’t have direct control over monetary policy, Donald Trump has spoken out in the past about the need to lower interest rates to boost economic growth.
Read our breakdown of other ways to make money based on what the Fed will do next. As a general rule, lower rates are beneficial for growth industries like technology that can make more money in the future because they raise the present value of future earnings.
Lower rates are especially beneficial for the internet’s infrastructure as a whole. If interest rates went down, it would be easier for builders of big data centers to get the money they need.
This could lead to more capital spending in the space, which would be beneficial for companies like Nvidia, Micron, and AMD.
Understanding the Economics of AI
The economics of the AI revolution are still challenging to understand because it costs a lot to train models and draw conclusions from them. However, as interest rates fall, the payback equation might become a little more favorable.
Over the last three years, the increase in the Internet infrastructure theme has not been steady. Each year, returns have been much more volatile than those of the S&P 500.
The theme brought in 45% in 2021, -38% in 2022, and 68% in 2023. The Trefis High-Quality Portfolio, on the other hand, has 30 stocks and is much less volatile. And it
has done better than the S&P 500 every year during that period. Why does that happen? HQ Portfolio stocks gave better returns with less risk than the benchmark index as a whole.
HQ Portfolio performance metrics indicate that they experienced less volatility. Will the theme underperform the S&P over the next 12 months, as it did in 2022, or will it see a jump?
Long term, the theme will grow because of the structural shift toward more digitization. However, prices are a bit high, which makes the risk-to-reward trade-off a bit less appealing in the short term.
Recently, Nvidia Stock has been the best performer in our theme. It has gone up about 200% in the last year as demand for graphics processing units has grown.
On the other hand, Cisco stock has been one of the worst performers, returning only 15% over the last year. Not long ago, Nvidia passed Apple to become the most valuable company in the world. It is going to be a part of the Dow Jones Industrial Average on Friday. Check out how Nvidia stock can go up to $200.
