Key takeaways
- Nvidia’s Q4 earnings exceeded analysts’ predictions, prompting a jump in stock price
- The day after the announcement, Nvidia stock closed at more than a 14% gain
- Nvidia CEO Jensen Huang is bullish on AI and believes we’re on the brink of a major disruption, calling it an “inflection point”
Nvidia’s Q4 earnings report beat expectations and spoke to a new focus on its data center and AI-as-a-service products, prompting its stock to raise 6% on the day of the announcement and 14% the day after. Making sense of the latest financial news in the tech sphere is tough, but Q.ai’s Emerging Tech Kit is designed to make investing in it easier for you.
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The chipmaker reported an adjusted EPS of $0.88, which was better than the analyst consensus prediction of $0.81. In addition, Nvidia’s Q4 revenue came out to $6.05 billion, which was better than the expected $6.0 billion.
Alongside these numbers came a renewed commitment to its cloud AI endeavors, which has analysts and investors buzzing. Here, we’ll cover what you need to know if you’re considering investing in Nvidia.
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What’s the connection between Nvidia and AI?
Nvidia is one of the leading chipmakers, and its GPUs are particularly well-suited for AI applications. Given the growth of the AI market, Nvidia is leaning into that aspect of its products.
On Nvidia’s earnings call, Nvidia’s CEO, Jensen Huang, stressed the importance of AI for the company’s strategy and expressed optimism about the future of the technology.
“AI is at an inflection point, setting up for broad adoption reaching into every industry,” said Huang. “From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.”
This affirmation could hardly come at a better time: AI has been center stage in the public eye the past few months thanks to ChatGPT, AI art generators, and some truly bizarre conversations with Microsoft’s Bing AI chatbot. So, it’s no surprise that Nvidia’s involvement in the hottest technology is causing quite a stir.
But what exactly is Nvidia’s involvement with AI in more concrete terms? In November, Nvidia announced that it would be partnering with Microsoft to build a “massive cloud AI supercomputer,” as Nvidia put it. This supercomputer could then be used by enterprises that are using Microsoft Azure.
During the earning’s call, Huang talked about that same supercomputer. “We are set to help customers take advantage of breakthroughs in generative AI and large language models,” said Huang. “Our new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 networking fabric, is in full production.”
Nvidia has also partnered with Oracle and Google to provide AI-as-a-service on their respective cloud platforms for enterprise customers.
According to Nvidia’s press release: “At the AI platform software layer, [enterprise customers] will be able to access NVIDIA AI Enterprise for training and deploying large language models or other AI workloads. And at the AI-model-as-a-service layer, NVIDIA will offer its NeMo™ and BioNeMo™ customizable AI models to enterprise customers who want to build proprietary generative AI models and services for their businesses.”
What’s happening with Nvidia stock?
Naturally, Nvidia’s (NASDAQ: NVDA) better-than-expected earnings report and the company’s involvement with AI has investors excited. On the day of the earnings call, Nvidia’s stock rose 6%. The next day, it rose an additional 14%, closing at $236.64.
NVDA has been in an upward trend since October 2022, when it hit a 52-week low of $108.13. Since then, it’s gained over 100%, but it hasn’t yet retested its 52-week high of $289.46, which it achieved in March 2022.
The bullish case for Nvidia
Nvidia’s upward trend shows no signs of slowing down, and the good news from its earning call is seemingly keeping the momentum going.
The AI market is set to take off—with one popular commentator comparing it to the rise of the Internet—and Nvidia’s chips are the tools of choice for many AI companies.
According to CNBC, a New Street Research report found that Nvidia already has a 95% market share for GPUs that can be used for machine learning, which is an integral part of many AI models. Nvidia’s DGX A100 chip, in particular, has become the “workhorse” of the industry, according to Nathan Benaich, publisher of the State of AI report.
What’s more, enterprise-level AI applications, like ChatGPT, require huge numbers of GPUs. CNBC reports that analysts at New Street Research estimated that Microsoft could need as many as 20,000 8-GPU servers (160,000 GPUs in total) to roll out Bing’s AI to the public, which could come to $4 billion worth of infrastructure for that one application.
If Microsoft wanted to field a higher volume of requests from users, that estimate could reach $80 billion.
Clearly, this is a major growth and profit opportunity for Nvidia, and given the increased interest in AI-as-service, in which Nvidia is also involved, many analysts are bullish on the chipmaker.
The bearish case for Nvidia
Despite all the hype around AI, Nvidia’s actual earnings are fairly underwhelming and some investors believe they aren’t in line with the jump that NVDA made following the report.
When you look at just the numbers, things don’t look so great: year-over-year, Nvidia’s revenue is down 21%, its operating expenses are up 27%, its operating income is down 58%, its net income is down 53%, and its diluted earnings per share are down 52%.
Some investors argue that these numbers are to be expected given that Nvidia had an unusually profitable past few years thanks to the pandemic, and in that context, the report shows signs of growth and recovery. However, others argue that the numbers simply indicate a company that’s overvalued and running on the hype of the newest tech — a run that won’t last forever.
The bottom line
Nvidia’s Q4 earnings beat expectations and the company spoke of moving in an AI-centric direction. In response, Nvidia’s stock jumped 6% on the day of the earnings call and another 14% the day after.
It’s tough to figure out what earning reports mean for you as an investor and what technologies deserve your attention. Q.ai’s Emerging Tech Kit was designed to put your portfolio on autopilot and make those tough decisions for you thanks to its AI-powered investment algorithms.
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