Most semiconductor stocks, which have been riding the artificial intelligence wave, are trading in the red after one of the sector’s key players, Advanced Micro Devices (NASDAQ: AMD), reported disappointing Q3 2024 results.
Investors reacted negatively to this lackluster report, with the stock plunging almost 10% in 24 hours to trade at $151 as of press time.
The correction emerged after AMD’s guidance warned that the company’s supply of AI chips would likely remain constrained in the coming year, indicating that it may struggle to meet demand from major technology firms.
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The grim outlook was further compounded by the chipmaker’s revenue guidance of $7.5 billion, plus or minus $300 million, for the last quarter of the year, slightly below consensus forecasts of $7.55 billion.
Interestingly, the stock’s performance surprised some analysts, such as those at Morgan Stanley (NYSE: MS), who noted that the company’s returns were “essentially in line” with consensus expectations. In an investor note, the banking giant noted it was “somewhat surprised” with AMD’s returns.
On the other hand, there remains some bullishness regarding ADM, with experts at Bank of America (NYSE: BAC) reiterating a ‘Buy’ rating with a price target of $180.
AMD’s recent share price dip after its underwhelming earnings report has added uncertainty to the AI-driven stock boom. Like Nvidia, AMD is a significant player in the sector, so its performance is of interest, betting on the AI trend.
ChatGPT-4o verdict on AI boom
In this regard, Finbold consulted OpenAI’s ChatGPT-4o to gather insights on whether AMD’s Q3 earnings performance will impact the broader AI landscape.
ChatGPT-4o began by laying out factors that could determine the AI boom’s fate, highlighting potential market saturation and demand fluctuations. The tool warned that rapid AI growth could lead to saturation and downside risk if companies overestimate future needs for AI chips and data centers.
Additionally, the AI model highlighted that profitability could be squeezed across the sector due to heating competition, especially in the AI hardware scene. AMD’s struggles, it suggested, indicate that only firms with the strongest technology and market positions will sustain growth.
ChatGPT-4o also pointed out that high-growth sectors have a high chance of experiencing “hype cycles.” These cycles are characterized by initial excitement, which inflates stock prices before economic realities bring a recalibration.
While AI’s core applications remain strong, companies may face valuation adjustments as investors shift towards sustainable expectations.
The verdict of AI sector fate
On the fate of the AI boom, ChatGPT-4o stated that the AMD results could indicate the sector is in a realignment phase, likely pointing to a slowdown but not a stall.
The OpenAI application warned that short-term volatility, such as AMD’s dip, could dampen investor enthusiasm in the short run, though the long-term potential of AI technologies remains intact.
Analysts take on AI bubble
In contrast, some analysts and financial figures have mixed opinions regarding the chances of an AI bubble burst. For instance, SoftBank’s CEO Masayoshi Son dismissed the AI bubble narrative, noting that sector leader Nvidia remains undervalued.
Finally, OpenAI Chair Bret Taylor noted that the ongoing AI boom can be compared to the Dot-com bubble. However, he warned that the AI might be in a speculative phase.
Taylor noted that the rapid growth of AI might be “justified,” suggesting that, as with the dot-com era, companies with trillion-dollar valuations could ultimately emerge from the enthusiasm surrounding AI’s potential.
