Semiconductor stocks rallied in Wednesday's trading session after Nvidia (NVDA) CEO Jensen Huang highlighted "great" demand for AI chips. KeyBanc Capital Markets equity research analyst John Vinh joins Morning Brief to discuss the state of the overall AI race and some of the key players in the sector.

After Nvidia rose 8% intraday, Vinh believes the movement indicates "a recovery based on kind of an overreaction on earnings." While Nvidia's most recent earnings met and beat expectations, investors were still disappointed as they looked for bigger returns.

However, Vinh doesn't think the AI trade is stopping anytime soon: "I think what really drove the recovery you're seeing more recently is that Oracle (ORCL) came out talked about very strong accelerating growth on the AI side. And they also said that their outlook for next year is going to result in a doubling of capex. So I think that's reassuring investors that the AI trade is not over yet."

He argues that Oracle is "one of the key important reads in terms of AI hyperscaler demand and spend going forward." He also points to AMD (AMD), Marvell (MRVL), and Broadcom (AVGO) as standout names in the "expansive market" and highlights Cirrus Logic (CRUS) as a lesser-known play. He calls the company a "proxy for Apple (AAPL)," noting that 80% of its revenue is Apple-driven. As the tech giant rolls out Apple Intelligence, Cirrus Logic will be a beneficiary, especially if it kicks off an upgrade cycle.

While the AI race shows no signs of stopping, Vinh expects spending to be "unabated" as data centers become a crucial part of the equation. He explains, "What we look at in our perspective, at least in the near to medium term, at least going into 2025, is that all these AI hyperscalers are going to have to aggressively spend. The next-generation platform that Nvidia is releasing, Blackwell, is going to basically lower your TCO (total cost of ownership) by 30x."

"So if we're still waiting for that monetization model, operationally, if you're a hyperscaler, you've got to go with the lowest cost TCO solution out there until you get that monetization model. So we don't see any sort of letup in spend over the next 12 months here," he concludes.

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This post was written by Melanie Riehl