Arm (ARM) recently joined the AI wave, with its share price nearly doubling in the past week and tripling since its initial public offering (IPO) price of $51.
Arm is renowned for its CPU architecture, initially favored in smartphones due to its low power consumption, which extends battery life. This technology has also made its way into laptop CPUs. For instance, Apple employs Arm architecture to design its M-series chips for MacBooks and A-series for iPhones, moving away from Intel and Qualcomm.
Despite not being an obvious choice for AI initially, Arm’s CPU architecture is increasingly utilized in cloud servers for AI computing. This surge in use is bolstered by growing business from Microsoft, Amazon, Nvidia, and others as these cloud entities expand their AI services. For example, Nvidia’s supercomputer GH200 leverages an Arm Neoverse V2 architecture in its Nvidia Grace CPU to complement the Nvidia Hopper GPU.
The escalating demand for Arm architecture in AI applications has significantly boosted Arm’s revenue and earnings. Revenue increased by 14% year-over-year in the latest quarter. Investors are captivated by this narrative, eagerly buying the stock in anticipation of future revenue growth, which has propelled the share price upward.
Palantir (PLTR) is another stock that has benefited from the AI narrative. In my previous coverage of its earnings, I noted that its AI platform (AIP) is experiencing high demand, leading to a 70% year-over-year increase in its U.S. commercial revenue.
The share price of Palantir gained 23% in the past week.
Super Micro Computer (SMCI) stands out as another AI-related stock garnering attention. The company reported an impressive 103% year-over-year revenue growth for the quarter ending December 31, 2023. Super Micro is renowned for its world-class server racks and infrastructure, which are especially tailored to meet the demands of AI computing. For instance, they construct AI server racks optimized for Nvidia HGX-H100, allowing companies to purchase these specialized racks for enhanced performance over generic ones and to expedite the deployment of AI services.
Super Micro is broadening its rack offerings to include optimizations for NVIDIA CG1, CG2 Grace™ Hopper™ Superchip, H200, and B100 GPUs, L40S Inferencing-optimized GPUs, AMD MI300X/MI300A, and Intel’s Gaudi 2/3.
Michael Liang, CEO of Super Micro, expressed his optimism about the AI sector, stating, “Overall, I feel very confident that this AI boom will continue for many quarters, if not many years.”
The company’s stock has been reaching all-time highs recently, showcasing a parabolic price movement.
While there is undeniable, tangible growth and real-world application in AI, the surge in share prices seems to have outpaced the underlying fundamentals, embodying overly optimistic expectations for the future. It’s a common scenario in burgeoning sectors, where initial excitement can inflate valuations beyond what current earnings and growth prospects justify. This trend might continue, buoyed by the momentum and speculative interest, until a correction occurs when the market reassesses the sustainability of such growth. But I will be cautious at this point in time.
