Record Profits at Samsung and TSMC Say the AI Trade is Intact

Despite a questionable macro economy and soaring energy prices, equity markets have been buoyed by the massive, unprecedented artificial intelligence buildout. Just how impactful has the AI revolution been for the U.S. economy and stock market? The massive wave of CAPEX spending on data centers, graphics processing units (GPUs), and energy has accounted for more than a quarter of total U.S. GDP growth and now dwarfs every other major American infrastructure boom, including the Interstate Highway System, the Apollo space program, and the 19^th-century railroad expansion. In other words, Wall Street’s big question is: “How sustainable is AI spending?” The answer matters not only to the AI industry, but also for the U.S. economy and stock market as a whole.

Below are three clues that AI spending is sustainable for the foreseeable future, including:

Samsung’s Record Profit

Samsung Electronics is the world’s largest memory manufacturer. AI data centers have driven insatiable demand for memory over the past few years. Last night, Samsung’s earnings gave investors clues about AI spending. Samsung reported the most profitable quarter ever by any company ($80.2 billion). Samsung’s main customers include Qualcomm (QCOM), Alphabet (GOOGL), Tesla (TSLA), Advanced Micro Devices (AMD), and Amazon (AMZN).

Taiwan Semiconductor Reports Record Revenue

Memory makers aren’t the only ones showing that AI growth remains scorching-hot. Taiwan Semiconductor (TSM), the world’s largest manufacturer of AI chips, reported record Q3 revenue of $46.7 billion, up 50% year over year. TSM is a critical AI company to watch because it produces over 60% of all global contract chips and over 90% of advanced chips. NVIDIA (NVDA), AMD, QCOM, Intel (INTC), Apple (AAPL), and Broadcom (AVGO) are all TSM customers.

SpaceX Raises Moneyfor Compute

Earlier this week, SpaceX (SPCX) announced it will raise $40 billion in debt to buy NVIDIA chips as it scales its AI compute. Although investors often frown upon debt offerings, SpaceX’s compute economics are mind-boggling. For every dollar SpaceX spends bringing on AI compute, it’s payback period is well under one year, thanks to lucrative deals with Google and Anthropic. In other words, SpaceX is proving that n AI compute investing not only makes sense, but the economics are also extremely attractive.

Bottom Line

The sustainability question about the AI infrastructure buildout has been answered. Recent news from Samsung, TSMC, and SpaceX suggests record CAPEX spending will continue.

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This article originally published on Zacks Investment Research (zacks.com).

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