AI chipmakers will get 'biggest bang for the buck': Investor
Chipmakers are flourishing as the world has started to invest heavily in AI. While new technology will continue to rapidly develop, will investors see this boom reflected in the markets as well? At the World Economic Forum in Davos, Switzerland, Cloudflare CEO Matthew Prince told Yahoo Finance that 2024 could be "the year of the AI letdown."
Synovus Trust Senior Portfolio Manager Dan Morgan joins Yahoo Finance to discuss what artificial intelligence trends mean for chipmakers and personal device sales.
"I look at AI as a productivity enhancement tool that will help... digital ad spend with Meta (META) and Google (GOOG, GOOGL) and Tiktok and, so forth, and Amazon (AMZN)," Morgan says. "We haven't really seen it really impact, let's say, Microsoft with ChatGPT (MSFT); We haven't really seen Alphabet with Bard and really have a dramatic, positive increase in terms of profits."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
JULIE HYMAN: Hey, Dan, it's Julie here. I want to talk a little bit about how much AI is playing into that equation and how much of it is other stuff, right? I was just in the World Economic Forum in Davos and spoke to Matthew Prince of CloudFlare, and he had an interesting comment about AI. I want to play for you what he had to say.
MATHEW PRINCE: I don't think AI is going to fade over the long term. But if I had to predict, I would say 2024 is going to be the year of the AI let down. It's going to make us recognize that it's really easy to create an AI demo, which is incredibly impressive. But it's very hard to take that demo and turn it into a product. That doesn't mean we won't turn it into a product, but I think it's going to be harder than we think. I don't think those products are going to come in 2024. They may not even come in 2025.
JULIE HYMAN: So, Dan, I'm just curious hearing that-- A, do you agree? And B, how is that going to play out when it comes to chips where there are a lot of high AI expectations baked in?
DAN MORGAN: Yeah, Julie, so I've always taken the point of view on AI that somewhat similar to your previous guest that you spoke to last week, and that is that I look at AI as a productivity enhancement tool that will help like digital ad spend with Meta and Google and TikTok and so forth and Amazon. We haven't really seen it really impact, let's say, Microsoft with ChatGPT. We haven't really seen Alphabet with Bard really have a dramatic positive increase in terms of profits. I think the one area, Julie, and you kicked it off with that was, how does it impact the chip manufacturers?
And I think they're the one group that probably will get the biggest bang for the buck, and we've already seen that with NVIDIA. We have Intel coming out with new chips. You might have gone to the Electronics Show in Vegas a couple of weeks ago. And AMD and Nvidia both came out with their AI PC chips. So I do believe the chip sector in the manufacturing area will get a good boost in 24 from AI, especially data center. But I agree with your previous comments with your guests that I think it's more productivity enhancement. It's going to be very hard to really say, Wow, ChatGPT for Microsoft accounted for a 25% jump in growth. Does that make sense?
JULIE HYMAN: Yes.
JOSH LIPTON: And, Dan, it's not just AI. I mean, the chip names we're talking about here, as you noted, I mean, the important end markets include PCs and smartphones. I'm interested, Dan, when you look at those two verticals, do you think they've bottomed here, Dan? And would you expect growth over 2024?
DAN MORGAN: Hey, you're right, Josh. Those are the groups that had the big bounce after COVID, work from home, and then they came down. It's about a third of the market. PCs, laptops, and smartphones, I expect those to continue to get out of the hole while, let's say, industrial and auto, which was very strong, let's say, a year and a half ago, everybody remembers the auto manufacturers couldn't get enough chips, and they were just selling them for whatever price they wanted them.
Now they would become a little bit more muted. But that's a big part of the market along with memory. You think of Micron and Samsung. Well, I would expect, Josh, a bounce back in those core groups, those old laptops, smartphones, and PCs and DRAM, and the more emerging groups, which auto industrial slowly working back in the fold. But again, looking for good things out of chips into the new year.
