This article first appeared on The Motley Fool’s U.S. website.

Shares of Advanced Micro Devices (NASDAQ: AMD) catapulted higher today after the chipmaker signed a blockbuster deal with OpenAI, coming on the heels of a similar partnership between OpenAI and AMD rival Nvidia.

As of 9:59 a.m. ET, AMD stock was up 26.6% on the news after opening up 35%.

What’s happening with AMD and OpenAI?

On Monday morning, AMD and OpenAI announced an agreement for OpenAI to deploy 6 gigawatts of AMD GPUs over several years and several generations of chips. For context, 6 gigawatts could power more than 1 million homes. The partnership will start with an initial deployment of 1 gigawatt of AMD’s Instinct MI450 Series GPUs in the second half of next year.

The deal will make AMD a core compute partner of OpenAI, and the two companies are deepening a partnership that began with earlier editions of the MI GPU series.

As part of the agreement, OpenAI will receive a warrant of 160 million shares of AMD stock, which is structured to vest as specific milestones are reached in the deployment. Fully converted, those shares would be worth roughly US$32 billion now.

OpenAI CEO Sam Altman said, “This partnership is a major step in building the compute capacity needed to realize AI’s full potential. AMD’s leadership in high-performance chips will enable us to accelerate progress and bring the benefits of advanced AI to everyone faster.”

What it means for AMD

The deal with OpenAI not only creates a huge customer for AMD, but it also acts as validation for its data center GPUs, as the company has long played second fiddle behind Nvidia in that category.

Six gigawatts is a huge amount of demand to fulfill, and AMD said the deal was “expected to deliver tens of billions of dollars in revenue for AMD,” and to be “highly accretive to AMD’s non-GAAP [generally accepted accounting principles] earnings per share.”

Based on that statement, it’s not a surprise that AMD stock is having one of its best days in its history.

The post Why AMD Stock Was Skyrocketing Today appeared first on The Motley Fool Canada.

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Fool contributor Jeremy Bowman has positions in Advanced Micro Devices. The Motley Fool recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.

Shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) were pulling back today after the U.S. Justice Department (DOJ) asked a judge overseeing an antitrust case against the Google parent to order Alphabet to sell its popular Chrome web browser.

The news was the latest sign of regulatory aggression toward Alphabet, and the stock was down 5.9% as of 2:15 p.m. ET.

Is Alphabet an illegal monopoly?

Alphabet has been no stranger to regulatory pressure, as the DOJ also recently said that Google’s payments to Apple (NASDAQ:AAPL) to be the default search engine run afoul of antitrust rules.

The DOJ additionally argued that Google’s ownership of Android gave it an unfair advantage and summarized its case, saying, “The playing field is not level because of Google’s conduct, and Google’s quality reflects the ill-gotten gains of an advantage illegally acquired.”

Alphabet pushed back on the DOJ’s argument, saying its demands would “hurt consumers and America’s global technological leadership.”

Chrome isn’t a direct revenue driver for Alphabet, but it helps the company bring users into its ecosystem, where it can drive ad revenue, collect their data, and form partnerships that help monetize the platform. Still, losing Chrome would likely be a significant setback to Alphabet’s business and Google’s image, not to mention the Justice Department’s other charges against the company.

What’s next for Alphabet?

The Trump administration is set to take over the DOJ in two months, so the future of the case against Google is unclear.

The president-elect has enjoyed backing from a number of Silicon Valley bigwigs and venture capitalists, and Wall Street also cheered the election result, believing that it would bring less regulation. A number of financiers believe the Biden administration has overstepped its mandate in antitrust regulation and in blocking mergers and acquisitions.

Still, investors clearly see the DOJ case as a risk to the stock, and a judgment in favor of the DOJ would damage Google. The federal court overseeing the case has scheduled a two-week hearing in April 2025 to determine what changes the company must make so that it is no longer an illegal monopoly, and the case is expected to be resolved sometime next year.

Investors should expect the news to continue to move the stock, and be on the lookout for further updates on the case.

The post Why Alphabet Stock Was Sliding Today appeared first on The Motley Fool Canada.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet and Apple. The Motley Fool has a disclosure policy.

Artificial intelligence (AI) stocks were soaring today in response to the U.S. Federal Reserve’s decision yesterday to cut the benchmark interest rates by 50 basis points.

The federal funds rate is now 4.75%-5%, and the central bank signaled that it would cut rates twice more, by 25 basis points each time, before the end of the year.

While stocks were volatile after the announcement yesterday, investors gave the news a full-throated cheer this morning, with major stock market indexes up sharply. The S&P 500 was up 1.5% and the Nasdaq up 2.3% as of 10:09 a.m. ET. Growth stocks and those dependent on capital investment like AI stocks did especially well.

Among the winners were Broadcom (NASDAQ: AVGO), which was up 4%; Taiwan Semiconductor (NYSE: TSM), which had gained 4.3%; and Arm Holdings (NASDAQ: ARM); which was also up 4.3% at the same time.

The VanEck Semiconductor ETF (NASDAQ: SMH) was up 4.2% as well, showing that the gains were broad-based in the chip sector.

Why AI stocks were soaring today

Semiconductors and AI stocks are a sensitive, cyclical sector in any kind of market environment, but that’s especially true in the current one, as there’s a lot of uncertainty around the strength of the economy, the durability of AI investment, and valuations in the sector.

However, falling interest rates help assuage concerns on all of those fronts, especially since the central bank surprised some investors by cutting rates by 50 basis points instead of 25 bps, showing they want to stay ahead of the curve this time.

Broadcom is a diversified tech company with exposure to cybersecurity, virtualization software, custom semiconductors, Ethernet switches and networking chips, and AI. The company expects to generate $12 billion in AI revenue this year.

Broadcom is known as a prolific acquirer of businesses, buying VMware late last year, and lower rates will make it easier for the company to finance future acquisitions. Lower rates could also reduce Broadcom’s interest rate or help it refinance its debt, as the company now has $66.8 billion.

Additionally, Broadcom’s customers will benefit from lower borrowing costs, making them more willing to invest in chips and other tech infrastructure.

Taiwan Semiconductor may be the biggest linchpin in the tech industry. It’s the world’s biggest contract manufacturer of semiconductors, handling production for companies like Apple, Nvidia, Broadcom, and AMD. It’s a cyclical business, and lowered interest rates are likely to support spending and demand for its major companies, especially Apple, which makes up about 25% of its revenue, as the iPhone maker is sensitive to consumer spending and demand.

TSMC is also in the process of building massive foundries around the world, and it will need billions of dollars to do so. Lower borrowing costs, at least in the U.S., will make it easier for it to do that.

Finally, Arm Holdings is in a similar position to TSMC as a key supplier for partners like Apple and Nvidia. Arm isn’t a manufacturer, however. It licenses its chip designs like CPU architecture to companies like Apple. In fact, the iPhone is estimated to account for roughly half of its royalty revenue currently, so a boost for spending on iPhones is a win for Arm. Notably, Apple stock was up around 4% this morning.

Similarly, the company also has increasing exposure to AI technologies in data centers and elsewhere, and lower rates should help increase investments in those areas, including in Arm technology, benefiting the company.

What’s next for AI stocks?

With interest rates expected to come down further this year and into next, that should provide a tailwind for these three stocks and help tamp down concerns about a recession, which should further boost the AI sector.

While there are valid concerns about valuations and the strength of end-user demand for new AI technologies like ChatGPT, the cloud infrastructure giants have signaled their eagerness to keep spending on AI infrastructure, which should support the growth of Broadcom, TSMC, and Arm.

With monetary policy now loosening, AI stocks look poised for another step higher.

The post Why Artificial Intelligence (AI) Stocks Broadcom, TSMC, and Arm Holdings Were Moving Higher Today appeared first on The Motley Fool Canada.

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Fool contributor Jeremy Bowman has positions in Broadcom. The Motley Fool recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Shares of Oracle (NYSE: ORCL) rose Monday as the tech giant continued to win acclaim from Wall Street analysts, a week after the company posted a strong fiscal first-quarter earnings report as the company’s cloud infrastructure business continues to surge in the artificial intelligence (AI) era.

As of 1:14 p.m. ET Monday, the stock had jumped 6.3% on the news.

Oracle still seems overlooked

In the aftermath of gains following last week’s earnings report, the stock continued to move higher as Melius Research upgraded the stock from hold to buy.

Melius credited Oracle’s accelerating revenue growth, and stable and solid margins, and it thinks the company can continue to top analyst estimates. The research firm raised its price target from $155 to $210, implying a 22% upside in the stock.

Additionally, over the weekend, Jefferies raised its price target on the stock from $170 to $190 and reiterated its buy rating on the stock.

Analyst Brent Thill said after attending a recent investor conference and talking to Oracle partners that the company is “getting its mojo back.” It also noted that growth in both Oracle Cloud Infrastructure and backlog is accelerating. 

Can Oracle stock keep climbing?

With its strength in database management and a cloud infrastructure business known for security, Oracle seems like the kind of business that should thrive in the AI era, and indeed, it’s opening data centers faster than it ever has before.

In the first quarter, ended Aug. 31, the infrastructure business jumped 45% to $2.2 billion, and overall revenue was up 7% to $13.3 billion.

Remaining performance obligations jumped 53% in the quarter to $99 billion, showing demand is surging, and adjusted earnings per share was up 8% to $1.39, meaning margins are expanding.

The company remains optimistic about the future of AI and its cloud infrastructure business. Given that momentum, the stock looks like a good bet to keep gaining.

The post Why Oracle Stock Has Risen 10% in Just 5 Days appeared first on The Motley Fool Canada.

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Fool contributor Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Oracle. The Motley Fool has a disclosure policy.

Shares of Taiwan Semiconductor (NYSE: TSM) were moving lower today after the chip manufacturing giant posted slowing revenue growth in its August update.

Though its growth rate was still strong, it marked a deceleration from July, and that news was enough to push the stock lower.

At 10:45 a.m. ET, the stock was down 2.6%. It recovered some in intraday trading and was down 1.5% for the day as of 1:25 p.m. ET.

TSMC hits the brakes

Taiwan Semiconductor has been one of the biggest beneficiaries of the artificial intelligence (AI) boom thus far, as the company is the world’s biggest contract chip manufacturer, serving customers like Apple, Nvidia, Broadcom, and AMD. For that reason, its performance is closely watched as a bellwether for AI and the broader semiconductor industry.

For August, the company reported revenue of $7.8 billion, up 33% from a year ago but down 2.4% from July’s total. Year to date through August, revenue is now up 31% to $55.1 billion, meaning August growth was mostly consistent with the rest of the year.

Management does not provide any commentary on the monthly reports, but not only was revenue down sequentially, but the growth rate, while still strong, was a meaningful deceleration from 45% in July.

Should investors be worried?

Most companies don’t report monthly data because the numbers are often volatile and not reflective of underlying business trends. The August slowdown at TSMC could certainly be just a blip rather than a trend.

The update is no reason to be alarmed at this point, but it is worth keeping tabs on the company’s monthly revenue reports, especially as some investors are worried about a bubble in AI.

If TSMC reports another deceleration in September, it could be some cause for concern, but investors should also remember that generative AI will take years to play out.

Therefore, under those circumstances, a modest sell-off in TSMC stock seems fair, but the report is no reason to change your thesis on the stock.

The post Why Taiwan Semiconductor Stock Was Pulling Back Today appeared first on The Motley Fool Canada.

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Fool contributor Jeremy Bowman has positions in Broadcom. The Motley Fool recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Super Micro Computer (NASDAQ: SMCI) was having a rough day today after the artificial intelligence (AI) server maker reported another strong quarter of sales growth, but margins compressed faster than expected and it badly missed estimates on the bottom line.

The stock was down 18% as of 1:54 p.m. ET on the news.

Supermicro suddenly shows weakness

Supermicro, as the company is also known, has been one of the best-performing stocks in the AI boom, but the bull thesis took a hit last night as the company reported a sharp decline in gross margin, showing it was facing rising input costs and was unable or unwilling to pass them along to customers.

Revenue in the fiscal fourth quarter soared once again, jumping 144% to $5.31 billion, which matched analyst estimates.

Gross margin fell from 17% to 11.2%, which restrained bottom-line growth. Adjusted earnings per share rose from $3.51 to $6.25, but that was well below estimates at $8.07, which had investors heading to the exits.

Management said it had a path to improve gross margin to 14% to 17% as it introduces new platforms and improves manufacturing efficiencies.

CEO Charles Liang added, “We are well positioned to become the largest IT infrastructure company, driven by our technology leadership including rack-scale DLC liquid cooling.”

Can Supermicro recover?

Looking ahead to the first quarter of fiscal 2025, the company forecast revenue of $6 billion to $7 billion, up from $2.06 billion in the quarter a year ago, or 215% at the midpoint, which was much better than estimates at $5.46 billion. It also called for adjusted earnings per share of $6.69 to $8.27, which was slightly worse at the midpoint than the consensus at $7.58.

If you believe management’s reassurance about gross margin bouncing back, the sell-off looks overdone. In fact, Supermicro is now trading at a forward P/E of 15 based on fiscal 2025 estimates, though those estimates could come down. Based on that, the stock looks like a steal considering how fast the business is growing.

The post Why Super Micro Computer Stock Was Tumbling Today appeared first on The Motley Fool Canada.

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Fool contributor Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.