NVIDIA Stock Soars as CEO Jensen Huang Cites Generative AI Edge

Financial Planners


Do you have an envy for Nvidia stock? If so, it’s never too late to buy.

Why? The company, which designs semiconductors for gaming, data centers and artificial intelligence, has a market cap of 9,520 on optimistic earnings forecasts for this quarter after jumping 26% to a record high on May 25. billion dollars.

After years of hype, generative AI is shaping up to be the biggest since the iPhone. As software companies build massive language models to vie for consumer attention, Santa Clara, Calif.-based Nvidia, including Microsoft, Google, Meta Networks, Amazon and others, will win the AI ​​war regardless of who wins. Demand for chips will continue to explode. fighting.

Another AI Supplier Choice winner is Taiwan Semiconductor Manufacturing Company, which makes NVIDIA’s AI chips.

In November 2021, I called Nvidia a buy as the stock has enjoyed an average annual price increase of 35% since its IPO in 1999. Since then, the stock has risen 30%.

Stock prices go up because companies exceed investor expectations. Nvidia will likely continue to do so.

Nvidia’s first quarter report

Nvidia designs semiconductors for the gaming, data center, and automotive industries while outsourcing manufacturing.

Q1 2024 sales fell short of expectations. It ended in April. Nvidia shares have surged on expectations that demand for AI chips will explode sales in the second quarter.

according to CNBCthe highlights are:

  • First quarter revenue: $7.19 billion It was down 13% from $8.29 billion in the same period last year and $670 million higher than Refinitiv consensus.
  • First quarter adjusted earnings per share: $1.09 — 17 cents more than expected.
  • Second Quarter Revenue Forecast: $11 Billion (plus or minus 2%) — Exceeded expectations by 54%.

Most of the revenue growth comes from selling chips to data centers. The breakdown of revenue by division is as follows.

  • Data center revenue increased by 14% Revenue of $4.28 billion, $380 million more than expected from cloud vendors and major consumer internet companies using Nvidia chips to train and deploy generative AI applications like OpenAI’s ChatGPT. demand for GPU chips,” he said. CNBC.
  • Gaming revenue down 38% Macroeconomic headwinds and an increase in Nvidia’s latest gaming graphics processing unit (GPU) chips pushed it $260 million above expectations.
  • Automotive revenue increased 114% $300 million (4% of total revenue in the first quarter).

AI Industry Explosion Drives Chip Demand

It wasn’t the miners who were the brightest during the gold rush. It was their pick, shovel and blue jeans supplier.

Today, gold diggers are large-scale language AI model (LLM) builders. The pick and shovel maker is a company that designs and manufactures the semiconductors that power the computer hardware that trains and operates LLMs on behalf of hundreds of millions of end users.

LLM Developer Drives Chip Demand

LLM developers include Microsoft, Google and Meta Platforms. His ChatGPT for OpenAI “spurred an arms race among tech giants to bring advanced AI capabilities to their customers,” the magazine said. wall street journal.

MicrosoftMSFT is adding this technology to its Bing search engine and business software. GoogleGOOG built advanced AI tools. Meta PlatformsFB is working on technology. journal I got it.

Indeed, AI has long suffered from high unfulfilled expectations. I experienced this at a start-up company that was launched decades ago with the goal of providing personal financial planning services using expert systems. Unfortunately, the value of this technology for personal financial planners has not justified the cost of AI.

Nevertheless, as I wrote in April, generative AI will end as a market of about $11 billion in 2022, growing at a CAGR of 31% to reach $152 billion by 2032. is expected to.

This could be a bonanza for Microsoft, which has invested $13 billion in OpenAI. I estimated that ChatGPT could contribute his $30 billion to $40 billion to Microsoft’s revenue. This equates to a 10% to 20% increase over his 2022 earnings for the tech company.

Nvidia gets a head start over AI chip rivals

The high demand for AI chips is a business opportunity only if suppliers can keep up with the demand. To do that, companies must be able to build, ship, and service their products.

Nvidia is ready to supply these AI chips. As Nvidia’s CFO Colette Kress told investors on an earnings call, “This demand has extended our visibility into our data centers for several quarters, leading to significantly increased supply heading into the second half of the year. was able to procure

Nvidia believes AI is the biggest thing since Apple introduced the iPhone in 2007. CEO Jensen Huang said, journal“All the technology came together to make everyone aware of how great this product is and what it does.”

Meanwhile, operators of large data centers are rebuilding their computing infrastructures to capture the growth opportunities of AI. “As companies race to apply generative AI to every product, service, and business process, he said the trillion-dollar global data center infrastructure being deployed will move from general-purpose to accelerated computing. Let’s go,” Huang said. journal.

How high will Nvidia’s stock price go?

Nvidia’s boffo earnings forecast has prompted analysts to raise their price target from $375 to $500. benzinga.

Reality has trained investors to be a little wary of such bullish forecasts. When I wrote about his Nvidia in November 2021, the idea that the Metaverse (which was then at the center of the hype cycle’s incandescence) would be a force driving demand for his Nvidia chips was sorely mistaken. It turned out that

At the time, Facebook expected 2022 capital spending on the Metaverse to grow 66% to about $32 billion. This represents his $10 billion new approachable market opportunity for NVIDIA. But Mark Zuckerberg’s vision of the Metaverse turned out to be a nightmare.

Nonetheless, I think Nvidia has a compelling bull case to profit from generative AI. Jeff Blaber, chief executive of technology consultancy CCS Insight, said: financial times, Chips and associated software tools will be the linchpin of the next generation of AI. Blaber said NVIDIA leads the AI ​​chip industry with a “comprehensive toolchain that no other company has.”

Nvidia has told investors it will surpass $11 billion in revenue in the second quarter, so if it doesn’t feel confident it can achieve that result — and possibly even surpass it — it could end up in a shareholder lawsuit. .

as cress said market watch, “The tipping point for AI is here.

Nvidia’s formidable competitive edge in generative AI has been built over 15 years.As financial times According to reports, Huang said on May 24, when ChatGPT kicked off yet another massive investment cycle by the world’s richest company, 15 years of investment and production capacity expansion would allow Nvidia to make the right move at the right time. He told analysts that it was placed in a good place.

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