Nvidia is driving the tech sector, with St. in the spotlight. Analysts say the AI bubble is still sustainable

(Il Sole 24 Ore Radiocor) - The technology sector is in fine form in Europe following the release of the financial results by tech giant Nvidia. In Milan, STMicroelectronics topped the main index (+2.92 per cent), followed by Prysmian (+1.6 per cent), whilst Technoprobe (+1 per cent) also performed well outside the FTSE MIB. In Amsterdam, the sector’s giants are shining, with ASM International (ASML) and BE Semiconductor leading the AEX, whilst in Frankfurt, Infineon Technologies and SAP are standing out.

The buying that had also driven Asian tech shares higher earlier in the morning – with SK Hynix closing up 2.5 per cent in Seoul and Samsung up 1.7 per cent – was fuelled by the better-than-expected results from the Santa Clara-based giant. The group closed its second fiscal quarter with net profit and revenue more than doubling, and provided revenue forecasts that exceeded estimates. Adjusted earnings per share stood at $2.22, compared with the consensus estimate of $2.10, on revenue of $96.22 billion, compared with the estimated $92.17 billion. Net profit more than doubled to 53.95 billion, compared with 24.76 billion a year earlier. The company also forecasts revenue of $108 billion for the third quarter, representing a 2 per cent change compared with analysts’ average estimate of $104.19 billion. Nvidia stated that it had not included sales of data centre chips from China in its forecasts.

The group expects revenue growth of 70 per cent in the next financial year, but this figure could be ‘much higher’ if there were no supply constraints, particularly with regard to memory chips, according to CEO Jensen Huang, who made the comments to analysts during a conference call. Demand for the company’s products would be sufficient to support 100 per cent revenue growth, added CFO Colette Kress, explaining that Nvidia is working with its suppliers to increase production capacity.

“Management’s guidance continues to confirm extremely robust demand for artificial intelligence-related infrastructure, a trend that is expected to remain strong in the coming financial year as well,” comment analysts at Mps, who highlight how the market is responding positively to “results that exceeded expectations across various metrics and, above all, very solid guidance for the 2028 financial year”. Nvidia’s results provide strong confirmation of the trend in artificial intelligence infrastructure, says Charu Chanana, chief investment strategist at Saxo Markets, in a note. The memory, networking, optics and energy infrastructure sectors, as well as some cloud service providers, are all benefiting from the continued expansion of capacity, but there is a growing need to demonstrate the returns from AI, notes Chanana. However, the next phase of the memory sector’s performance will depend increasingly on the ability of AI demand and memory-intensive content to absorb the growing supply capacity, rather than simply on shortages driving prices up.