The optimistic views of the CEOs of Wall Street’s leading artificial intelligence (AI) companies don’t necessarily equate to their actions, and that can be problematic.
Nearly 30 years ago, the Internet forever changed the growth trajectory of American businesses. A company’s ability to reach beyond the store with the click of a mouse has fueled the growth of American companies for decades.
But Wall Street has been waiting for the next big trend to rival the Internet for quite some time. Many upcoming technologies, innovations, and trends have emerged since the mid-1990s, but none have come close to what the advent of the Internet has brought to business…until now.
Image source: Getty Images.
The rise of artificial intelligence (AI) has professionals and casual investors excited, and for good reason. Because AI-driven software and systems have the potential to increase proficiency at assigned tasks and learn new skills without human intervention, this technology is available in most sectors and industries around the world.
Perhaps the most surprising estimate of AI’s usefulness comes from the report Sizing the Prize, published by researchers at PwC. PwC predicts that the artificial intelligence revolution alone will add $15.7 trillion to the global economy by 2030, based on a combination of productivity gains and consumption side effects.
But while many Wall Street analysts and investors are overwhelmingly bullish on AI, there appears to be a lack of belief in what matters most: the companies leading this revolutionary revolution.
The sky seems to be the limit for Nvidia, Broadcom and AMD
A quick look at the stock charts of Wall Street’s biggest AI companies shows that they are by no means struggling. Nvidia (NVDA 0.78%) has gained over $3 trillion in market cap since the beginning of 2023. Meanwhile, Broadcom (AVGO -0.90%) and Advanced Micro Devices (AMD -0.18%) posted gains of 216% and 141%, respectively. It changes in 21 months. There is no doubt that AI is fueling this performance improvement.
Nvidia hardware is leading the way. The company’s graphics processing units (GPUs) are essentially the brains that power instantaneous, AI-powered decision-making in data centers. Demand for the H100 GPU (commonly known as “hopper”) was so high that Nvidia was able to increase the price of its chips by anywhere from 100% to 300% compared to its competitors. . The end result was a double-digit point improvement in the company’s adjusted gross margin.
Advanced Micro Devices entered the space much later than Nvidia, but it still sees a lot of demand for its low-cost MI300X AI GPU. With Nvidia’s chips backlogged, it is expected that established chip companies like AMD will siphon off AI GPU orders from the former.
A little more than a week ago, AMD announced its next-generation AI GPU, the Instinct MI325X. It will work perfectly with Nvidia’s successor Blackwell GPU architecture. AMD plans to start producing its newly announced chips later this year, but that won’t give Blackwell much, if any, head start.
Broadcom, on the other hand, has been the company of choice for providing AI networking solutions. Broadcom isn’t just about AI, including wireless chips and accessories used in next-generation smartphones, but its Jericho3-AI fabric helps reduce tail latency and maximize the computing potential of AI GPUs. plays an important role in. High computing data center. A large portion of Broadcom’s current revenue growth comes from its AI solutions.
There’s nothing at first glance to suggest that the arrows aren’t pointing upwards for all three companies…unless you take a closer look at their respective insider transactions.
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Wall Street’s leading artificial intelligence stocks have conviction problems
According to comments from Nvidia CEO Jensen Huang, Broadcom CEO Hock Tan, and AMD CEO Lisu Su, demand for AI solutions is strong, as evidenced by double-digit growth rates for both companies. But the actions of these CEOs and other insiders indicate a critical belief problem among Wall Street’s biggest AI companies.
Whenever an insider of a listed company (this could be a member of the board of directors or a senior member of the management team) buys or sells shares in the company, these transactions are reported to the stock exchange via Form 4. must be reported to. Exchange committee. Over the subsequent 12 months (October 17, 2023 to October 16, 2024), sales activity across all three of these major businesses was lopsided, to say the least.
Nvidia: 83 insider sales (25 from Jensen Huang), 0 insider purchases Broadcom: 32 insider sales (8 from Hock Tan), 0 insider purchases AMD: 23 insider sales (8 from Lisu Su); 0 insider purchases
In total, that’s 138 separate insider sales, and none of these artificial intelligence giants have been bought on the open market by a single insider in the past year.
To be fair, there are countless reasons why insiders might sell stock, and they’re not all necessarily bad news. For example, insiders may be selling shares to cover taxes. It is not uncommon for executives who receive large amounts of stock-based compensation to need to sell some of their stock to cover federal and state taxes.
On the other hand, company insiders buy stocks for one reason only: because they believe the stock price will go up. It’s been 13 months since the last insider purchase at Broadcom, 46 months since the last insider purchase at Nvidia, and more than 5 years since the last insider purchase at AMD. Simply put, actions speak louder than words.
If Nvidia, Broadcom, and AMD insiders lack the conviction to put their money where their mouth is, why should ordinary investors pay a premium for unproven technology? Is it?
