The $5 Trillion Rush: The AI Chip Frenzy Has Dotcom Written All Over It

Global semiconductor stocks are witnessing a sharp rally with chipmakers climbing to their highest levels since the dotcom boom as artificial intelligence-driven demand fuels heavy investment in computing infrastructure.

Shares of major chip companies have surged this year which have the Philadelphia Semiconductor Index up about 75 per cent. The index, which tracks 30 leading US-listed semiconductor firms, is now on track for its best annual performance since 1999, according to Bloomberg data. In just the last two months, the sector has added more than $5 trillion in market value which is roughly 1.5 times the UK's FTSE 100.

Investor sentiment is being driven by expectations that demand for AI hardware will stay strong for years even as supply struggles to keep up.

A major driver of the surge is spending from Big Tech companies. Meta, Alphabet, Amazon and Microsoft have collectively committed around $725 billion this year towards building data centres and AI infrastructure needed to support large-scale computing systems, Financial Times reported.

Bank of America strategists said they retain “high conviction in continued AI [infrastructure] strength.” They pointed to the ongoing supply constraints and strong demand from governments, enterprises and industrial sectors.

The rally has also extended into AI-focused startups. OpenAI and Anthropic, both still unprofitable due to heavy infrastructure spending, are expected to pursue valuations above $1 trillion when they go public later this year.

“It's gung ho, folks. There's a lot of exuberance out there. Right now it's good,” JPMorgan chief Jamie Dimon said told the publication.

But he warned that past market booms had often been followed by downturns in years such as 1972, 1986, 2000 and 2007.

Market gains are no longer being driven only by a handful of major tech companies that had dominated the rally after ChatGPT's launch in 2022 as leadership in the sector begins to widen across other stocks as well.

While Nvidia remains the world's most valuable listed company at $5.1 trillion, rivals including Intel, AMD and Arm have outperformed it this year as investors bet AI demand will spread beyond graphics processing units (GPUs) into other chip architectures.

AMD has gained more than 120 per cent after securing supply agreements with Meta and OpenAI. Arm has surged over 160 per cent after shifting its strategy toward designing its own chips, a move it says could drive revenue fivefold over five years.

Memory chipmakers have also benefited with Micron and SK Hynix who joined the group of companies valued above $1 trillion this week.

But Nelson Yu, head of equities at AllianceBernstein, warned that Big Tech spending could be reduced if a recession were to hit.