There is a story related to the California Gold Rush about how only a few lucky diggers got rich, but the truth is that there were several successful companies that started their business by selling items like shovels, clothing and services to people who were looking for gold.
Popular examples are Wells Fargo and Levi Strauss. If Artificial Intelligence (AI) is the new gold rush then Nvidia is the company selling the shovels, writes eToro analyst for Romania, Bogdan Maioreanu. In order to offer AI to clients, large data centers are necessary and currently over 90% of those are using Nvidia architecture based on their graphics chips.
The latest earnings report is contributing to this picture. Quarter after quarter, Nvidia is posting growth. Q1 results are showing Data center revenue exceeding expectations, coming in at $22.6B, compared to estimates of $21.13B. Revenue for the period rose 23% from the previous quarter and 427% year-over-year. The company stock price exceeded $1000 in the after market hours. Most likely the announced 1 to 10 split will help individual investors buy more stock, propping the stock even more. On the trading and investing social platform eToro, the company stock is the 4th most held by global investors and 6-th by the Romanian investors.
Jensen Huang, founder and CEO of Nvidia considers that the next industrial revolution has begun. Companies and countries are partnering with Nvidia to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center, AI factories. These are producing a new commodity, artificial intelligence, to bring significant productivity gains to nearly every industry and help companies be more cost- and energy-efficient, he said.
The benefits of the transition to AI are not yet evident and this process requires significant investments. Investments that Nvidia is happy to supply with its advanced graphic chips and networking tools. But there are threats ahead for the company. Biggest clients are becoming biggest competitors as Meta, Microsoft, Google and Amazon are also investing heavily in developing their own GPUs. Intel Introduced the Gaudi 3 AI accelerator, mentioning that it delivers 50% on average better performance and 40% on average better power efficiency than the Nvidia H100 – at a fraction of the cost. As AI technology advances, there may be a shift towards smaller, specialized models that require less computing power, rather than larger, general-purpose ones. Moreover, as AI becomes increasingly integrated into smartphones, the demand for certain types of AI hardware could change in the future.
The geopolitics are getting hotter and these tensions impact Nvidia’s supply chain, as the company relies heavily on Taiwan Semiconductor Manufacturing Company (TSMC) for chip production. The semiconductor factory has become a focal point of global technology and geopolitical rivalry between the United States and China.
Still, all the above will become more important as the time passes but not in the next quarter. After last night’s very good results the company seems well on the path to continue to increase its business. Nvidia expects to generate $28B in revenue inr the second-quarter of this fiscal year showing that, in the current AI gold rush, until competition will catch up, there are still plenty of shovels to be sold.
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