AI Market Update: Q2 2024 in Review

Addressing Challenges in the AI Industry: Managing Investor Expectations, Quarterly Results, ROI, and Data Center Expansion

With billions of dollars at stake, the recent unveiling of AI products by tech giants has had a significant impact on their quarterly results. OpenAI's GPT-4, Google's AI-powered Chromebooks Plus, Apple's AI-powered iPad and Microsoft's (NASDAQ:MSFT) Copilot+ PCs have set the stage for an AI-driven revolution in consumer technology.

As an example, Dell Technologies' (NYSE:DELL) financial results for its first fiscal quarter of 2025 were objectively solid, with 6 percent revenue growth compared to last year and an increase in AI-optimized server orders and shipments. However, despite these positive results, Dell's share price fell by over 15 percent in after-hours trading, with the decline attributed to the fact that investors had expected even stronger growth from the company.

AI-related revenue bolstered Amazon (NASDAQ:AMZN) and Broadcom’s (NASDAQ:AVGO) quarterly results, with Amazon shares hitting a new record high of US$189.05 on April 11 after its Q1 earnings showed a 235 percent rise in net income year-on-year. This marked a significant milestone for the company at the time, and its share price continued to climb – as of July 16, it is trading at US$193.02.

Broadcom’s results for its second fiscal quarter of 2024 also showed a surge of 280 percent in AI-related revenue, and the company announced that a 10-for-1 stock split would take place on July 15.

The volatility of AI stocks was on full display toward the end of April with the industry’s major players experiencing significant swings in their share prices.

NVIDIA and Super Micro Computer (NASDAQ:SMCI) led a tech selloff on April 19 when Super Micro failed to deliver a positive pre-announcement of its Q3 results. NVIDIA, a strategic collaborator of Super Micro, saw its share price fall in tandem below its 50-day moving average, and the company experienced its steepest decline since March 2020.

Days later, Super Micro, which had joined the S&P 500 only one month prior, plummeted 23 percent, leading analysts to speculate whether AI’s run could be showing signs of winding down. The company’s results added fuel to these worries when it missed revenue estimates for Q3 and saw its shares drop 14 percent in after-hours trading.

Despite the earlier challenges, NVIDIA had its best weekly performance in almost a year during the week that ended on April 26, when its share price rallied 15 percent on the heels of quarterly reports released by Meta (NASDAQ:META), Microsoft and Alphabet. All three companies announced plans to spend more on AI in the coming year; however, only Meta — whose Q1 results were released in close succession to Llama 3 and the addition of multimodal AI to its Ray-Ban Smart Glasses — saw a drop in share price due to weaker Q2 revenue guidance coupled with higher expenditure. The stock’s price fell by 14.74 percent.

Alphabet announced its first dividend and a US$70 billion stock buyback upon the release of its Q1 results, bringing its share price up by 10 percent and driving the market cap above US$2 trillion, its highest valuation since November 2021.

Apple and Microsoft also reported strong financial performances. Apple's Q2 results included a record-breaking US$110 billion share buyback program, demonstrating the company's commitment to shareholder value. Meanwhile, Microsoft's Q3 results revealed a robust 17 percent year-over-year revenue increase.

NVIDIA's upward trend continued as it announced Q1 2024 results and a June 7 stock split — potentially making it eligible for a spot on the Dow Jones Industrial Average — on May 22. Subsequently, NVIDIA surpassed Apple as the second most valuable company on June 5, achieving a market cap of US$3.02 trillion.

Rising Challenges: Chip Shortage, Geopolitical Tensions, and Power Consumption

The rapid growth of AI and the increasing demand for data-intensive applications have led to a surge in data center construction and a significant increase in electrical utility demand. Rene Haas, CEO of Arm Holdings (NASDAQ:ARM), told Bloomberg that AI computing's energy consumption is projected to surpass the electrical use of India by 2030.

With those dynamics in mind, Amazon and Alphabet have announced significant investments in data center infrastructure, with Amazon investing US$11 billion in Indiana and Alphabet planning a US$3 billion investment for data centers in Indiana and Virginia.

These data centers require vast amounts of energy to power their servers, cooling systems and other infrastructure, contributing to the overall strain on electrical grids. As AI continues to advance and more data-driven technologies emerge, the demand for electrical power by data centers is expected to further escalate, with South Korean electrical equipment manufacturers such as Hyundai (KRX:005380), Hyosung (KRX:004800) and LS Electric (KRX:010120) witnessing significant gains in their share prices as a result.

However, the demand poses challenges to energy providers and necessitates innovative solutions for sustainable power generation and distribution, prompting the establishment of the Federal AI Safety and Security Board. The board is comprised of prominent figures like NVIDIA's Jensen Huang and OpenAI’s Sam Altman, who will help guide the responsible development and deployment of AI technologies, including addressing the associated challenges of increased electricity consumption.

The subsequent surge in power consumption has brought the energy efficiency of computer chips into sharper focus. Google, for instance, unveiled Axion, an Arm-based data center processor, aimed at improving energy efficiency in data centers, along with a new version of its own AI chip.

The push for efficiency extends to the manufacturing process as well. TSMC is planning a new generation of technology called A16, which is expected during the second half of 2026. The company says the technology will allow it to produce chips without using ASML’s (NASDAQ:ASML) High NA EUV machine, which can reportedly build powerful chips more efficiently.

TSMC also had a good quarter, reporting its fastest monthly revenue growth since 2022 in March. The chipmaker's Q1 results, released on April 18, beat market expectations in quarterly net profit by 9 percent, with growth expected to continue as demand for chips increases.