The Other Side of Artificial Intelligence: Why Wall Street Is Starting to Distrust Chips

The enthusiasm for artificial intelligence continues to drive investments in technological infrastructure, but questions are beginning to arise on Wall Street about the sustainability of the semiconductor business. The concern is whether the huge outlays from major tech companies can translate into sufficient revenues and whether financing agreements between chip manufacturers and their clients could create excessive dependency within the sector.

In this context, Nvidia, AMD, and Broadcom are attracting investors' attention. Although all three companies are positioned to benefit from the expansion of AI, their growth prospects and valuations present differences that require analyzing each case separately.

Different Perspectives

Agustín Boggiano, a financial advisor at Bull Market Brokers, maintains a favorable view of the sector, although he establishes clear preferences. "My favorite within the semiconductor sector remains Nvidia, followed by Broadcom. Both seem attractive to me due to their valuation and growth potential. I am more cautious with AMD, as I believe that much of the future expectations are already incorporated into its price," he stated.

The warning about AMD reflects one of the main concerns of the market: even when a company has good operational prospects, the price of its shares can limit the potential for increase if investors are already discounting a very optimistic scenario.

Still, the market believes that the demand for technological infrastructure still has room to expand. "AI is in an early stage of adoption, and its applications will continue to expand into sectors such as health, scientific research, finance, and industry," Boggiano affirmed. From that perspective, the growth of processing needs could sustain investment in semiconductors over the coming years.

Wall Street is starting to lose patience with a scheme in which chip manufacturers themselves participate in financing the companies that buy their products.

Wall Street Loses Patience with Circular Chip Financing

The main risk, however, lies in how this expansion is financed. Baird's technology strategist, Ted Mortonson, warned that investors are beginning to lose patience with a scheme in which chip manufacturers themselves participate in financing the companies that buy their products.

In statements to Yahoo Finance, he summarized that concern with one phrase: "Wall Street is getting tired of Nvidia's bank, AMD's bank, and Broadcom's bank."

Bruno Perinelli, head of Trading at Inversor Global, downplayed the current dimension of this phenomenon, although he agreed that it requires monitoring. "For now, this type of financing represents a low proportion," he noted, referring to the agreements through which suppliers provide lines of credit or buy stakes in client companies that, in turn, purchase their chips.

According to the executive, most investments come from large tech companies, known as hyperscalers, including Microsoft and Meta, which have their own resources and the ability to finance themselves through debt issuance.

"We need to monitor what proportion of the company's sales, the chip supplier, corresponds to this circular financing, whether it evolves, whether it regresses...," Perinelli warned. The goal is to determine whether purchases respond to sustainable demand or whether they increasingly depend on financial mechanisms that could amplify risks in the event of changing conditions.

The specialist also focused on the profitability of the outlays. "We need to see if the expectations included in the enormous amounts of investment, the CAPEX that large companies are investing, are justified based on the results they are obtaining and the adoption of various forms of artificial intelligence," he explained.

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