Nvidia and Advanced Micro Devices Just Gave Magnificent News to AI Chip Investors

How long will the strong artificial intelligence buildout last? The market appears optimistic, with AI chip leader Nvidia (NASDAQ: NVDA) trading at 34 times forward earnings estimates and challenger Advanced Micro Devices (NASDAQ: AMD) trading at 30 times.

However, there is a considerable debate among investors as to whether this hypergrowth is sustainable, or whether the AI buildout is going to pop like the dot-com bust.

This week, CEOs of AI chip leaders Nvidia and AMD made announcements, each of which gave even greater weight to the bull case for their stocks and AI chips stocks generally.

Bulls vs. bears on AI

AI stocks pulled back hard over the summer after a strong 18 months or so of performance, as skepticism worked its way into the story. After the Magnificent Seven, who are the main buyers of AI chips, reported good but not blowout earnings in July, investors appeared concerned that these big chip buyers weren't seeing a requisite return on their investments in Nvidia chips. Most big tech stocks and AI chip plays sank in response.

Giant hedge fund Elliott Management piled onto the skepticism, giving especially bearish commentary on what it perceives as an AI "bubble." Elliott wrote in its latest letter to investors that AI stocks were overhyped, declaring AI applications aren't, "ever going to be cost-efficient, are never going to actually work right, will take up too much energy, or will prove to be untrustworthy." Elliott dismissed the technology as only good for a few things such as summarizing reports and helping with computer coding.

That's certainly a point of view that should be considered. It may even be true of the current models that are out today. However, virtually everyone participating in the technology industry believes in the benefits. If benefits weren't likely going to be there, it seems unlikely every major technology company would be greatly expanding its AI investments today as they are.

For his part, Oracle Chairman Larry Ellison dismissed these concerns, declaring the race for AI supremacy "goes on forever, to build a better and better neural network." Ellison believes that AI capabilities will improve with more compute and better models, and that the large tech companies can't afford to cede the AI lead to competitors. With big tech armed with a ton of cash, he doesn't see the buildout ending for five to 10 years.

Jensen Huang and Lisa Su just dropped the mic

This week then saw two massive announcements from the number one and two AI chip companies that should allay near-term fears about the durability of the AI trade. At the beginning of the month, Nvidia's CEO Jensen Huang said demand for its next generation chip Blackwell was "insane." Fast forward to last week, and analysts at Morgan Stanley revealed Blackwell is already sold out for the next 12 months, after the firm hosted Nvidia executives at their offices.