US equities have been on a tear since the bear market bottomed in late 2022, and the Fed began to cut interest rates. The tech sector, which was hit the hardest sector, has led the way back higher, driven higher specifically by hyper-scaling in the artificial intelligence industry. Zacks Rank #2 (Buy) stock Nvidia (NVDA) is the most crucial stock in the most critical market area – artificial intelligence. Not only is NVDA significant due to its sheer size (its market cap is nearly $3.5 trillion), but it is also a key barometer for investors to gauge growth, and its best-in-class GPUs are an integral component for data centers that are being built by big tech companies like Microsoft (MSFT).

ChatGPT Debut Set Off AI Arms Race

Open AI and Microsoft’s ChatGPT chatbot debut in November 2022 sparked the breakout of artificial intelligence. Though AI had been around for years before ChatGPT, the wild popularity ChatGPT sparked led to an AI arms race among cash-rich big tech companies like Meta Platforms (META). Since then, semiconductor stocks like NVDA have benefitted dramatically. That said, ballooning valuations in big tech stocks has Wall Street wondering whether growth can keep pace.

Nvidia Earnings Estimates Suggest More Growth

Nvidia and its iconic CEO, Jensen Huang, did a lot to quell these concerns in the November earnings conference call. Huang called demand for Nvidia’s latest chip “insane,” and Zacks Consensus Earnings Estimates echo this thinking (at least until 2027). Wall Street analysts expect Nvidia to grow earnings per share by 125.38% year-over-year in 2025.

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Semis: Supply is the Concern, Not the Demand

With the red-hot continued AI demand, the main concern for investors is whether Nvidia can keep up with supply. Peeling back the onion further, two concerns existed from the supply side, including:

1.       Blackwell Delays: Nvidia’s next-generation AI chips were delayed due to design issues and overheating concerns discovered by Taiwan Semiconductor (TSM), an important supplier to Nvidia. However, these issues have reportedly been addressed, and production is expected to ramp up this month.

2.       SMCI Accounting Worries: Meanwhile, Super Micro Computer (SMCI) is another critical Nvidia supplier that designs high-performance computing (HPC) solutions used in AI chips. SMCI shares tanked for months after a notable short-selling firm raised accounting concerns, forcing SMCI to delay its earnings call. Nevertheless, the company announced today that a special committee forensic firm found no evidence of accounting fraud. In addition, the company announced they would replace their CFO, and shares jumped more than 20% in early trading on Monday.

Presently, NVDA supply concerns are under the rug.

SMH Finds Buyers at Critical Technical Level

Beyond the bullish supply news, investors have more reason to be bullish on semiconductor stocks into year-end. The Vaneck Semiconductor ETF (SMH) a proxy for semis, is retreating to support at its 200-day moving average – a level that marked significant bottoms in the previous two instances.

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Semi Valuations Remain Attractive

Finally, semiconductor valuations are attractive. While value-oriented investors may argue valuations are overheated in the industry, it’s critical to remember that higher forward growth demands higher valuations. Stocks like Arm Holdings (ARM) and Advanced Micro Devices (AMD) have seen their valuations become more attractive as shares have consolidated.

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Bottom Line

Semiconductor stocks are ready to rally into year-end after Nvidia supply issues were quelled and a bullish technical and valuation environment emerges. 

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Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report

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VanEck Semiconductor ETF (SMH): ETF Research Reports

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