(Bloomberg) — It may lack the sheer glamor of Nvidia Corp., but a hardware company that provides infrastructure for artificial intelligence computing is becoming the next hot deal.
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Companies like Micron Technology Inc., Super Micro Computer Inc. and Dell Technologies Inc. have been rewarded for their track records, but expectations are rising for next earnings season. Nearly half of the stocks in the Philadelphia Semiconductor Index are up at least 10% already this year, pushing the index’s price-to-sales ratio to its highest level in at least two decades.
The semiconductor stock index rose as much as 1.1% at the start of trading on Wednesday.
“The key is recognizing who’s really making money” with artificial intelligence, said Michael Sansoterra, chief investment officer at Sylvant Capital Management LLC.
Read more: Micron suffers biggest rally since 2011 as AI boosts outlook
The rally confirms a trend occurring in the AI space as investors look for stocks that have the potential to replicate Nvidia’s surprising gains. Nvidia remains the only competitor in the market when it comes to the market for processors powering AI workloads.
However, many other components are involved, such as memory chips, servers, and network components. Not to mention the equipment used to manufacture the chips themselves.
“Competition is fierce, and there are other ways to access the excitement and energy in this space,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Micron stock has risen about 30% in the last month, outpacing Nvidia’s 16% rise. The memory chip maker has been underperforming since it released financial results that included strong sales forecasts that showed strong demand for its AI software.
Dell soared to record highs in early March after demand for information technology equipment used in AI operations pushed sales and profits above Wall Street expectations.
Server maker Super Microcomputer rose 18% this month after being included in the S&P 500 index. The company will report earnings on May 2nd, but for the stock to continue rising, it will have to live up to expectations, with revenue increasing more than 200% in the quarter.
Still, even as the rally widens, some chipmakers trying to catch up with Nvidia, such as Broadcom Inc. and Advanced Micro Devices Inc., continue to lag behind industry leaders and are under further pressure. Broadcom slumped in early March after disappointing results, while AMD’s sales forecast for January was lower. Recently, there have been reports that China will restrict the use of chips.
Read more: Nvidia traders find reason to worry beyond 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 good reason to continue to believe that Nvidia will rise further, but we’re not going to make 100% of the gain here again,” Mulberry said. “If you look three years ahead, you might actually get a better return on investment.”
Today’s technology chart
Shares of video game retailer GameStop Inc. suffered their steepest decline in nine months after one of the original meme stocks reported a sharp drop in earnings. The decline came as stock prices rose on expectations that the U.S. Federal Reserve is likely to cut interest rates before the end of the year.
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