Thanks to the boom in AI and ChatGPT, Nvidia will take a spectacular leap on Wall Street

(BFM Bourse) – The graphics processor specialist has delivered a breathtaking outlook for the second quarter, driven by the emergence of generative artificial intelligence, ChatGPT. On Wall Street, the title is sky high and could surpass the record for increase in market value over a day held by Apple.

It is undoubtedly the card of the year on Wall Street or even worldwide for a mega capital letter: Nvidia. The American specialist in graphics processors has seen a spectacular rise since the beginning of the year, with a jump of 109% in its action. Founded almost 30 years ago today (April 5, 1993) by Jensen Huang, still at the helm of the group, the company benefited from the stock market frenzy surrounding the emergence of ChatGPT and more generally from generative artificial intelligence (AI ).

The idea is hardly complex: Nvidia dominates the market for graphics chips essential to powering advanced artificial intelligence tasks and applications.

Thus, as an (excellent) CNBC report shows, Microsoft and Google are equipping their data centers with thousands or even tens of thousands of Nvidia A100 graphics processing units (GPUs) to develop and train their chatbots, ChatGPT and Bard, respectively.

The increased use of generative AI results in more demands for computing power and therefore greater demand for Nvidia’s products.

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A jump on the stock market to “drop the jaw”

Nvidia’s stock is headed for a new fever pitch this Thursday. The company delivered a publication Wednesday evening after the close of Wall Street, which pleased the market. In pre-opening trading, Nvidia shares soared 24.6%, a pretty mind-boggling increase for a “megacap” where Nvidia is simply the sixth-largest publicly traded company by market capitalization. CNBC calls it a “subduing” jump.

If the current pre-opening run continues to the end of Wall Street tonight, Nvidia will add $186 billion to its market capitalization of over $940 billion, more than double that of LVMH. Nvidia would also approach a record held by Apple for the biggest increase in market value over a session on Wall Street. According to Bloomberg, the apple group currently holds this trophy with a jump of $190.9 billion last November, followed by Amazon (190.8 billion in February 2022).

The results of the first quarter of Nvidia’s 2023-2024 fiscal year, which ended on January 31, turned out to be better than expected. Total revenue of $7.19 billion fell 13% year-over-year, weighed down by the decline in the video game division, which saw a 38% dive. This “reflects the decline in demand due to the macroeconomic slowdown and the decline in shipments to normalize inventory levels in distribution channels,” explained CFO Colette Kress.

However, those revenues remain well above analysts’ expectations of $6.5 billion, according to a Refinitiv consensus cited by CNBC. In particular, Nvidia recorded a 13% year-over-year jump in revenue in its “data center” segment. An increase driven “by the growing demand for AI large language models using GPUs based on our Nvidia Hopper and Ampere architectures”, Colette Kress emphasized.

Ditto for earnings per share, at $1.09 per share. title, which far exceeded the research departments’ expectations (92 cents).

Against astonishing second-quarter earnings

But beyond these data, it is the revenue forecast for the second quarter communicated by Nvidia that impresses. The group said it expects revenue of $11 billion, which would reflect a staggering jump of more than 60% over a year. Above all, this indication explodes the Bloomberg consensus by $7.2 billion.

Jensen Huang said in a statement that the equivalent of $1 trillion in installed data center capacity must increase in force “as companies race to adopt generative AI in all products, services and business processes.” Hence the stratospheric outlook communicated by the company.

“They may be in a unique position,” Sanford C. Bernstein analyst Stacy Rasgon told Bloomberg Television. According to this analyst, the target the company had set for its second quarter would involve a 75% growth in revenue from the division’s data centers in a year during the period. “Is this an isolated phenomenon or a new norm? I don’t know,” he adds.

Naeem Aslam, of Zaye Capital, praises the strategy implemented by Jenson Huang, which is “the right one”. “The problem is that right now AI is overhyped – most people think it’s the only missing piece in the whole world. We think AI has a bright future, but current valuations have become too high, and buying stocks like Nvidia can cost you money.”

Julien Marion – ©2023 BFM Bourse

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