ii view: Nvidia shares rocket amid AI fever

This major US computer chip maker offers exposure to artificial intelligence, self-driving cars, and gaming. Buy, sell, or hold?

First-quarter results to 30 April

• Revenue down 13% year-over-year to $7.19 billion
• Adjusted earnings per share down 20% to $1.09
• Cash dividend of $0.04 per share, unchanged from the previous quarter

Founder and Chief executive Jensen Huang said:

“The computer industry is going through two simultaneous transitions — accelerated computing and generative AI. A trillion dollars of installed global data centre infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”

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ii round-up:

Computer chip maker NVIDIA Corp (NASDAQ:NVDA) forecast current second-quarter sales way above Wall Street estimates as demand for Artificial Intelligence (AI) related chips across its data centre customers surged.  

Nvidia expects sales of about $11 billion, plus or minus 2%, for the three months to the end of July, more than 50% higher than analyst estimates of around $7.15 billion. 

Shares in the Nasdaq 100 company rose by over a quarter in after-hours US trading having already more than doubled year-to-date coming into this latest announcement. Rival Advanced Micro Devices Inc (NASDAQ:AMD) is up by close to 70% during 2023, while shares for former sector giant Intel Corp (NASDAQ:INTC) has gained almost a tenth. The tech heavy Nasdaq 100 index itself is up by almost a quarter as hopes for a peak in US interest rates persist. 

Nvidia’s chip computing abilities feed into areas from data centre servers to gaming consoles, self-driving cars, and robotics. Data centre providers Microsoft Corp (NASDAQ:MSFT), Google owner Alphabet Inc Class A (NASDAQ:GOOGL) and Amazon.com Inc (NASDAQ:AMZN) have all recently expressed their increased focus on AI during recent results. 

Nvidia’s data centre related sales hit a record $4.28 billion during the first quarter to the end of April, rising 18% from the previous fourth quarter and 14% from the year ago first quarter.  

Automotive related sales more than doubled year-over-year, although remain relatively small at under $300 million in this latest quarter. 

Gaming related chip sales fell 38% year-over-year to $2.24 billion but rose 22% from the previous fourth quarter. 

Overall adjusted earnings fell by a fifth year-over-year to $1.09 per share, beating Wall Street forecasts nearer to $0.92 per share. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on Nvidia shares post the results, flagging an estimated fair value share price of $450 per share. Nvidia’s AGM is scheduled for 22 June. 

ii view:

Nvida was started in 1993 and today employs over 25,000 people. Its products help companies such as Oracle Corp (NYSE:ORCL), Medtronic (NYSE:MDT), and electric vehicle maker BYD to progress their products and services. 

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For investors, economic and geopolitical uncertain overshadow, with interest rates possibly rising further and both the USA and China growing increasingly reluctant to sell their chip products to each other. Questions over appropriate tech valuations persist, Nvidia’s exposure to Taiwan and China needs to be remembered, while government concern regarding the increasing power of major tech companies and the power of AI warrants consideration. 

On the upside, exposure to expected growth areas such as AI and self-driving cars is firmly evident. Easier comparatives for its gaming sales are now being seen given the previous end of the boom in gaming during the global pandemic, while the group’s founder, Jensen Huang with all his many years of experience, continues to lead the company.

For now, and while a price/earnings valuation comfortably ahead of most of its rivals generates some caution, momentum for now is very much in Nvidia’s favour. Shareholders now face a dilemma of whether to stay aboard for the ride or take profits. New investors will be excited by prospects, but won't want to be buying at the top just before a correction. Whichever camp you're in, and while the share price could be volatile, Wall Street believes there's great potential here and the company could be worth more than it is now.  

Positives: 

• Exposure to growth in data centres and AI
• Returned $10.44 billion to shareholders over 2022

Negatives:

• Uncertain economic outlook
• US and China tensions

The average rating of stock market analysts:

Buy