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AI investments will help chip sector to recover: Analyst

The semiconductor sector is undergoing a correction as interest rate cut expectations dwindle, prompting concerns about the impact on these high-growth, technology-driven stocks. Wedbush Enterprise Hardware Analyst Matt Bryson joins Yahoo Finance to discuss the dynamics shaping the chip industry.

Bryson acknowledges that the rise of generative AI has been a significant driving force behind the recent success of chip stocks. While he believes that AI is shifting "the way technology works," he notes it will take time. Due to this, Bryson highlights that "significant investment" will continue to occur in the chip market, fueled by the growth of generative AI applications.

However, Bryson cautions that as interest rates remain elevated, it could "weigh on consumer spending." Nevertheless, he expresses confidence that the AI revolution "changing the landscape for tech" will likely insulate the sector from the effect of high interest rates, as investors are unwilling to miss out on the "next technology" breakthrough.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.


This post was written by Angel Smith

Video transcript

BRAD SMITH: As rate cut bets shift, so have moves in one sector, in particular. Shares of AMD and Intel, both down over 15% in the last 30 days. The Philadelphia Semiconductor Index, also known as Sox, dropping over 10% from recent highs, despite a higher rate environment.

Our next guest is still bullish on the sector. Matt Bryson, Wedbush Enterprise Hardware analyst, joins us now. Matt, thanks so much for taking the time here. Walk us through your thesis here, especially, given some of the pullback that we've seen recently.

MATT BRYSON: So I think what we've seen over the last year or so is that the growth of generative AI has fueled the chip stocks. And the expectation that AI is going to shift everything in the way that technology works.

And I think that at the end of the day, that that thesis will prove out. I think the question is really timing. But the investments that we've seen that have lifted NVIDIA, that have lifted AMD, that have lifted the chip stock and sector, in general, the large cloud service providers, building out data centers. I don't think anything has changed there in the near term.

So when I speak to OEMs, who are making AI servers, when I speak to cloud service providers, there is still significant investment going on in that space. That investment is slated to continue certainly into 2025. And I think, as long as there is this substantial investment, that we will see chip names report strong numbers and guide for strong growth.

SEANA SMITH: Matt, when it comes to the fact that we are in this macroeconomic environment right now, likelihood that rates will be higher for longer here, at least, when you take a look at the expectations, especially following some of the commentary that we got from Fed officials this week, what does that signal more broadly for the AI trade, meaning, is there a reason to be a bit more cautious in this higher for longer rate environment, at least, in the near term?

MATT BRYSON: Yeah. I think certainly from a market perspective, high interest rates weight on the market. Eventually, they weigh on consumer spending. Certainly, for a lot of the chip names, they're high multiple stocks.

When you think about where there can be more of a reaction or a negative reaction to high interest rates, certainly, it has some impact on those names. But in terms of, again, AI changing the fundamental landscape for tech, I don't think that high interest rates or low interest rates will change that.

So when you think about Microsoft, Amazon, all of those large data center operators looking at AI, potentially, changing the landscape forever and wanting to make a bet on AI to make sure that they don't miss that change, I don't think whether interest rates are low or high are going to really affect their investment.

I think they're going to go ahead and invest because no one wants to be the guy that missed the next technology wave.