- Stock jumps 8% after-hours on Q4 beat and guidance lift
- Chip designer fuels huge AI excitement thanks to ChatGPT
- Nvidia demand strong as investors look to play ‘megatrend’
AI (artificial intelligence) microchips are on the verge of a major mainstream breakthrough as semiconductor designer Nvidia (NVDA:NASDAQ) predicted a wave of interest in new AI products sparked by OpenAI’s release of ChatGPT.
‘AI is at an inflection point, setting up for broad adoption reaching into every industry,’ Nvidia chief executive Jensen Huang said in the release. ‘From start-ups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.’
This was just the ticket for investors who had been getting nervous about weakening demand trends and their impact on Nvidia’s near-term growth.
Better-than-expected fourth quarter revenue at chip giant Nvidia after-hours sent its shares up 8% on Wall Street overnight, having been steadily losing ground since the middle of February. The stock is set to open at $224.60 when Wall Street reopens later today, according to pre-market data, close to year highs.
HOW Q4 NUMBERS BEAT
The Santa Clara-based firm reported Q4 EPS (earnings per share) of $0.88 on $6.05 billion revenues for the three months to 31 January. Consensus was for $0.81 on $6.01 billion sales.
Data centre and automotive chip demand remained firm, with record revenue for automotive of $294 million, although the gaming industry was badly hurt. This was evidenced by Nvidia’s graphics business, where revenues fell 46%, including ‘lower shipments of SoCs (system-on-chip) for game consoles, which investors will read as code for Nintendo isn’t selling as many Switches anymore” - it’s the only game console that uses an Nvidia chip.
But what really got investors excited were the optimistic comments about AI growth potential, and a more robust near-term outlook than anticipated. Nvidia forecasted Q1 2024 revenue of $6.5 billion, versus $6.33 billion pencilled in by analysts, not a huge upgrade but reassuring all the same.
HUGE PROMISE OF LATEST TECH BUZZWORD
‘The company is increasingly optimistic about artificial intelligence, helped by ChatGPT being the ultimate water cooler discussion point this year,’ said AJ Bell’s investment director Russ Mould.
‘It’s been ages wince we’ve had a real buzzword in the tech space and the chatbot has certainly taken the world by storm in a very short period of time.’
Nvidia stands to benefit as its chips are used to develop machine learning software. The company calls its DGX system an ‘AI supercomputer’ and ‘the blueprint of AI factories’ being built around the world. The newly announced launch of a cloud-based version of the system will make it even easier for companies to get on board this megatrend.
‘When you have the next big thing in tech, it’s natural for investors to scramble to find ways to play the theme. Nvidia’s involvement in the AI space now puts it directly under the spotlight, which means there could be strong demand for the shares, explaining why there has been a positive market reaction to its latest results alongside the earnings beat,’ said Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
