Due to the increasing demand for Artificial Intelligence (AI), there has been a tremendous rise in the shares of chip manufacturing companies in the last few years, but now Lisa Shalett, Chief Investment Officer of investment bank Morgan Stanley
Has advised investors to be cautious.
Shalet says that now there are indications that the price setting power of semiconductor companies may gradually weaken. This means that in the coming times, chip companies may not be in a position to sell their products at higher prices than before.
Big tech companies are making AI chips themselves
According to Lisa Shalett, the technology used in AI data centers is changing rapidly. Earlier, big tech companies were dependent on external companies for AI chips, but now big tech companies like Microsoft, Amazon, Google and Meta are designing their own low-cost AI chips as per their needs. If this trend increases rapidly, the demand and profits of traditional chip companies may be affected.
There was tremendous growth due to AI
Since the popularity of AI technology has increased, there has been a record rise in the shares of many chip companies of the world. Considering AI as the biggest opportunity of the future, investors invested heavily in this sector. For this reason, shares of semiconductor companies continuously reached new heights. However, Morgan Stanley believes that after this boom, the time has come to be cautious in the market.
Prices had increased due to lack of supply
Lisa Shalett said that when supply in an industry is low and demand is high, companies start charging higher prices. But after this, engineers and tech companies start preparing new low-cost options. According to him, the same process has started in the AI chip industry also. Big tech companies are now developing chips that can provide better performance at a lower cost.
Semiconductor shares have become expensive
Morgan Stanley said in its report released this week that shares of semiconductor companies have become “more expensive than necessary”. According to the report, many ETFs investing in chip companies and the Philadelphia Semiconductor Index have seen rapid growth in the last few years. According to Bloomberg data, the price-to-earnings (P/E) ratio of this index has increased more than three times since the year 2022. This means that many investors are willing to pay very high prices for these shares, which may increase profit booking and downside risks in the future.
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