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What Nvidia says about AI chip demand could matter for more than just the tech trade

Artificial intelligence enthusiasm has been spreading across the stock market.

Wednesday night's Nvidia (NVDA) earnings call will mark a year since the chipmaker first shocked Wall Street with its demand for AI chips. Since then, mentions of AI have skyrocketed on earnings calls, growing 186% since the first quarter of 2023, per Bank of America Research.

This comes as the conversation around AI has quickly moved from AI chipmakers like Nvidia (NVDA) and AMD (AMD) to AI power users like Alphabet (GOOG, GOOGL), Meta (META), Amazon (AMZN), and Microsoft (MSFT). More recently, strategists have highlighted a broadening out to other sectors that could benefit from the increased power usage, like Energy (XLE), Utilities (XLU), and Commodities.

"It's not just about NVDA anymore," Bank of America US and Canada equity strategist Ohsung Kwon wrote in a note to clients on Monday.

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This shift has already been underway in the market. Several precious metals, including copper (HG=F), which strategists have said will benefit from AI spend, have hit recent highs. The Utilities and Energy sectors are two of the top-performing sectors in the S&P 500 (^GSPC) this year, up about 15% and 13%, respectively.

This has trickled down to individual names that are now rivaling the meteoric stock rise of Nvidia since the start of 2024. Texas-based Vistra Corp (VST) is up roughly 140% this year, while Constellation Energy (CEG) shares have risen nearly 90%, which is about in line with Nvidia's rise this year.

In a note on Sunday, Morgan Stanley chief investment officer Mike Wilson listed Utilities as an Overweight sector, noting it offers "upside to the AI power theme." Wilson highlighted that the Power and Utilities team at Morgan Stanley believes electricity could rise from 3% of total US consumption in 2023 to about 10% by 2030, driven by new AI data centers that are 50 times the size of previous ones.

"Both traditional and alternative energy providers have upside revisions potential amid the increasing need for AI data center power and more favorable data center power deals," Wilson wrote.

And companies have been playing up their role in the AI buildout too.

Research from Goldman Sachs' equity strategy team led by David Kostin shows mentions of AI soared in the first quarter. More than 66% of companies in the Energy sector mentioned AI during their earnings calls this quarter, up from 19.1% last quarter.

Given the big-picture implications, investors will be closely watching Nvidia's report for color on AI chip demand.

Thus far, Nvidia has repeatedly surprised investors on this front, continuously topping analyst expectations for quarterly results and boosting its outlook for the coming quarter amid robust demand for its AI servers.

Whether this trend holds or breaks could now have repercussions for a variety of sectors.

"If markets wake up to say, 'Hey, maybe we got a little bit too excited about this and maybe we pulled forward some of these earnings just a little bit,' and that's reflected in those valuations,"' JPMorgan Asset Management global market strategist Jack Manley told Yahoo Finance, "that's where I think you have the potential for a bit of a shaky road."

BRAZIL - 2024/03/22: In this photo illustration, the Nvidia Corporation logo is displayed on a smartphone screen, with a graphic representation of the stock market in the background. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
Nvidia Corporation logo is displayed on a smartphone screen, with a graphic representation of the stock market in the background. (Rafael Henrique/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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