With Everything Going On, Why Does Wall Street Believe It's Time To Bet Big On AI Again?

As investors further digest and price the Trump administration's aggressive global tariff policies, panic in global stock markets has somewhat subsided. For the AI leaders that have consistently topped global stock market investment popularity since 2023, the investment thesis for artificial intelligence is gradually recovering as financial markets refocus on the strong demand expectations for AI infrastructure such as AI chips.

Ask Aime: What are the long-term implications of AI chip demand on stock market performance?

After experiencing the worst week of stock sell-offs in five years, sentiment toward reinvesting in risk assets is warming up. Some investors suggest that, following the Japanese government's push for trade cooperation negotiations, the Trump administration may be willing to relax its hardline trade stance.

Ask Aime: How will the anticipated shift in AI investment thesis impact the market?

After nearly two years of triple-digit explosive earnings growth, despite occasional fluctuations in investor sentiment, nvidia CEO Jensen Huang's exceptionally bullish outlook on demand for Blackwell architecture AI GPUs indicates that the super boom in AI spending by global corporations and key government departments shows no signs of slowing in the medium term. This is especially true for U.S. cloud computing giants, which continue to significantly expand their investments in AI infrastructure centered on AI chips this year.

With DeepSeek completely revolutionizing efficiency in AI training and inference, driving future AI large model development to focus comprehensively on the dual cores of low cost and high performance, the super wave of AI large models integrating into global industries continues to catalyze exponential growth in cloud-based AI inference computing power as AI applications accelerate their penetration. AI application software—particularly generative AI software and AI agents—is rapidly permeating industries worldwide, revolutionizing operational efficiency and significantly boosting sales. AI chip demand may exhibit exponential growth in the future, contrary to earlier market expectations that the DeepSeek shockwave would trigger a cliff-like drop in AI chip demand.

According to a recently released research report by Wall Street's well-known investment firm KeyBanc Capital Markets, the global semiconductor industry presents a two-track pattern—strong demand for AI chips while other types of chips remain sluggish. analog chips saw short-term growth driven by pre-tariff stockpiling, with demand resilience in China's smartphone and electric vehicle markets offsetting weakness in Europe and the U.S. However, there has been no substantial turnaround in the oversupply of analog chips. Meanwhile, AI chip demand remains strong, with NVIDIA's Blackwell architecture AI GPUs progressing smoothly in mass production (an estimated 5 to 5.5 million units to be shipped in 2025).

Additionally, another AI chip leader, amd, was downgraded by KeyBanc due to concerns about the sustainability of its AI business in China and potential price wars with Intel, which could pressure gross margins. KeyBanc also noted that memory chip giant Micron and China's Android market (dominated by Qualcomm's smartphone SoC chips) performed well, while Amazon's next-generation AI ASIC chip, the updated iteration of Trainium, shifting to another ASIC partner AIchips, may drag on Marvell's performance.

In the semiconductor sector, the divergence between AI and non-AI demand is stark.

KeyBanc analysts stated that the strongest theme in demand—AI chips—is still overwhelmingly dominated by NVIDIA (NVDA.US), which holds 80%-90% of the AI chip market share, while other AI chip players generally face negative catalysts. The analysts particularly highlighted the smooth progress in Blackwell architecture AI GPU mass production and stable demand for CoWoS advanced packaging.

KeyBanc analysts reaffirmed their 12-month price target of $190 for NVIDIA and maintained an "Overweight"rating on the stock.

In KeyBanc's view, AMD's (AMD.US) situation is entirely different. The firm downgraded AMD from Overweight to Sector Weight, citing concerns about the sustainability of its AI business in China, increasingly fierce competition in both AI and non-AI segments, and downward pressure on gross margins.

Other concerns KeyBanc raised about AMD include potential price wars with Intel (INTC.US) that could hurt gross margins, limited overall market share growth opportunities for AMD compared to Intel, and progress in Intel's 18A chip manufacturing process.

UBS and Other Institutions Also Favor NVIDIA's Rebound Cycle

Around the same time, global banking giant UBS (UBS) released a research report stating that while it is difficult to assert that semiconductor giants can completely avoid demand destruction related to Trump's aggressive tariff policies, UBS firmly believes AI spending will remain resilient. Weakness in overall demand conditions may force companies to accelerate the adoption of generative AI technologies to reduce operating costs. As a result, UBS will focus more on AI-driven stocks like NVIDIA and Broadcom (AVGO.US)—companies that not only benefit from the global AI wave but also possess pricing power in their core business models.

Although the recent sharp decline in U.S. stocks pushed NVIDIA's share price to its lowest level since May 2024, Wall Street broadly expects NVIDIA's stock to rise over the next 12 months. Additionally, many institutions believe the downtrend in the three major U.S. stock indices may not have fully ended, so stocks could fall further. However, institutions generally favor the market pricing trend of repairing the AI investment thesis, suggesting NVIDIA will see a significant oversold rebound in the short to medium term.

After Treasury Secretary Scott Bassett stated that the Trump administration is highly likely to reach favorable deals with some major trading partners, some Wall Street analysts noted that the possibility of a tactical rebound in U.S. stocks has increased after the recent rare sell-off. The strategy team at Bespoke Investment Group said that while the latest tariff news does not imply an imminent agreement, it at least shows the Trump administration's inclination to adjust tariffs through negotiations, buying some time for a pause in selling and a tactical rebound.

Deutsche Bank slightly lowered its NVIDIA price target in its latest report but still maintained a 12-month target of $135. According to the latest ratings and price targets complied by TipRanks, Wall street's consensus rating for NVIDIA is a "strong buy", with no "Sell"ratings. The average 12-month price target is as high as $135, with the highest target at $220 and the most pessimistic target at $120, which is still significantly above the current stock price.