ii view: AI stock Nvidia in rally mode

Despite a tough 2022, its stock is flying high in 2023. Buy, sell, or hold?

Fourth-quarter results to 29 January

• Revenue down 21% to $6.05 billion
• Adjusted earnings per share down 33% to $0.88
• Cash dividend of $0.04 per share

Founder and Chief executive Jensen Huang said:

“AI is at an inflection point, setting up for broad adoption reaching into every industry. From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.”

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ii round-up:

US computer chip maker NVIDIA Corp (NASDAQ:NVDA) reported fourth-quarter sales and earnings which beat Wall Street expectations, despite falling gaming sales and a tough comparison with the pandemic years when demand soared.

Overall sales fell 21% to $6.05 billion, hindered by a 46% fall in gaming related chips to $1.83 billion, but aided by an 11% improvement in data centre chips to $3.62 billion and including many products used for Artificial Intelligence, or AI systems. That beat analyst forecasts of $6 billion, with earnings of $0.88 ahead of estimates at $0.81 per share. 

Nvidia shares rose by 12%, adding to a 40% gain already made in 2023. That follows a halving in its shares during 2022 and comfortably outperforms a 10% gain by the tech-heavy Nasdaq year-to-date. Intel Corp (NASDAQ:INTC), which recently announced a two-thirds cut in its dividend payment, is down around 4% in 2023, while Advanced Micro Devices Inc (NASDAQ:AMD) is up 18%.

Nvidia’s chip computing abilities feed into areas from gaming, cloud computing, AI and robotics to self-driving cars, genomics and cryptocurrency mining.

The California headquartered chipmaker forecast quarterly sales to the end of April of $6.5 billion, ahead of Wall Street estimates at around $6.3 billion. Although down 21% year-over-year, it would mark a 7% improvement from the fourth quarter, with management expecting growth across all its segments. 

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Automotive related sales for this latest quarter rose 135% from a year ago to $294 million, with Nvidia partnering with technology manufacturer Foxconn to develop automated and autonomous vehicle platforms. Other partnerships include one with Deutsche Bank AG (XETRA:DBK) to extend its use of AI. 

ii view:

Nvida started in 1993 and today has a stock market value of over $500 billion. Employing over 20,000 people, its products help companies like Microsoft Corp (NASDAQ:MSFT), Oracle Corp (NYSE:ORCL) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL) progress their products and services. 

For investors, economic outlook uncertainty continues to raise doubts about future demand, with stocks across the most interest rate sensitive Nasdaq index, and including Nvidia, remaining highly volatile. Questions about appropriate tech valuations persists, group exposure to Taiwan and China regarding supplies needs to be remembered, while government concern regarding the increasing power of major tech companies has not gone away. 

On the upside, Nvidia enjoys exposure to growth areas like datacentres and AI, comparatives for its gaming sales get easier, while the group’s founder Jensen Huang has many years of experience running the company.

With shares sat close to the current analyst consensus estimate of fair value at $218, investors may decide to await any market weakness before making a move on this giant of the microchip world. However, as the positive reaction to latest news proves, Nvidia is a popular stock and a favoured way to play this theme.

Positives: 

• Exposure to growth in data centres and AI
• Returned $10.44 billion to shareholders over the last year

Negatives:

• Uncertain economic outlook
• US and China tensions

The average rating of stock market analysts:

Buy