shares of NVIDIA (NVDA 1.11%) will surge in 2023, registering a rise of more than 60% so far, and the chip maker’s frenzy will stay here, thanks to the growing frenzy around generative artificial intelligence (AI) applications. It seems possible.
Semiconductor pioneers could benefit greatly from the proliferation of artificial intelligence (AI) applications that have been in the spotlight in recent months, thanks to chatbots like Bard and ChatGPT. So it should come as no surprise that Nvidia’s executives spent a good deal of time on their latest earnings call explaining how the company is poised to become an enabler of generative AI applications.
Let’s take a closer look at how growing AI adoption could be a tailwind for Nvidia and drive long-term growth.
Nvidia could win big with generative AI
On February 22nd, Nvidia announced its fourth quarter results for fiscal year 2023 (the three months ended January 29th).generally accepted accounting principles) Earnings fell 33% to $0.88 per share. The guidance wasn’t compelling either, as the downturn in the personal computer (PC) market weighed on Nvidia’s gaming and professional visualization business.
The chipmaker expects revenue of $6.5 billion this quarter. That would be down 21% from his $8.3 billion in revenue in the year-ago quarter. Still, Nvidia’s stock surged 14% after the earnings release. While that may seem disconcerting given the company’s poor numbers and guidance, investors are pleased with the above-expected results and management’s comments about the generative AI opportunity.
CFO Colette Kress said in a call that Nvidia is working on a wide range of AI applications, including “virtual customer service agents, voice AI, fraud detection and automation of banking processes.” She also adds, “Generative AI foundation model sizes continue to grow exponentially, driving the need for high-performance networking to scale out multi-node accelerated workloads.” I was.
Simply put, the adoption of generative AI applications should ideally create a need for more powerful data center infrastructure, which should ultimately boost Nvidia’s graphics processing unit (GPU) sales. For example, ChatGPT was reportedly trained using 10,000 of his Nvidia GPUs. UBSMore Analyst Timothy Arkuri.
Given that ChatGPT is handling more capacity than it was designed for, it’s no surprise to see OpenAI quickly scale up its infrastructure. That means more Nvidia GPUs will likely be deployed to power chatbots. Unsurprisingly, Wall Street sees Nvidia as a big success with the proliferation of generative AI applications.
according to city group, ChatGPT could generate $3 billion to $11 billion in revenue for Nvidia in 12 months. More importantly, chatbots and other generative AI applications could be long-term catalysts for Nvidia stock. Mordor Intelligence predicts that the chatbot industry could see 30% annual growth through his 2027. The overall generative AI space is expected to grow nearly 35% annually through 2030, according to Grand View Research.
Given its dominant position in data center GPUs, Nvidia is well positioned to make the most of this rapidly growing opportunity. IDC estimates that Nvidia controls over 90% of the rapidly growing data center GPU market. Grand View expects the space to grow 22.3% annually through 2030.
And now, the emergence of chatbots and generative AI could give this market a big boost and pave the way for further growth for Nvidia’s already impressive data center business.
The phenomenal growth of the data center business continues
Nvidia’s top-line growth stagnated in fiscal 2023. The company’s revenue was his $26.9 billion, unchanged from the same period last year. However, the data center business was alive and well during the recession. Revenue in this segment will grow 41% to $15 billion in fiscal year 2023, accounting for nearly 56% of the chipmaker’s total revenue. Given the expected growth of the data center GPU market and the company’s dominant share, Nvidia can sustain this impressive growth for the long term.
Nvidia also sees a $150 billion market opportunity in data center chips and systems such as GPUs, central processing units (CPUs) and data processing units (DPUs). By expanding its presence into more types of data center chips, such as CPUs and DPUs, Nvidia is doing everything in its power to make the most of this lucrative market.
One of the main reasons Nvidia is expected to perform better in fiscal 2024 is the health of its data center business. $4.44 per share. Even better, Nvidia is expected to pick up steam in the next fiscal year, with revenue up 24% and earnings per share soaring 33%.
All of this shows that Nvidia’s surge is sustainable. This is why investors who have this AI stock in their portfolio should continue to hold it in anticipation of further rally.
Citigroup is an advertising partner for The Motley Fool’s Ascent. Harsh Chauhan has no positions in any of the mentioned stocks. The Motley Fool holds positions with and recommends Nvidia. The Motley Fool’s U.S. headquarters has a disclosure policy.