Nvidia investors expect the chip designer to beat forecasts in its quarterly revenue forecast when it reports results on Wednesday. Their only question is, by how much? The company is the biggest beneficiary of the rise of ChatGPT and other generative AI apps, nearly all of which are powered by its graphics processors. Nvidia shares have tripled this year, boosting the company’s market valuation by more than $700 billion (Rs 5,815 billion), making it the first multi-trillion-dollar chip company. It closed up 8.5% on Monday, its biggest gain in nearly three months.
Some analysts have warned that the strong rise in Nvidia’s stock price means there is little room for any earnings-related disappointment for Nvidia, and anything other than a higher-than-expected forecast could trigger a plunge in its stock price.
The outcome could also determine the direction of the broader market this week, as the S&P 500 has seen most of its gains this year come from gains in artificial intelligence-driven Nvidia and big tech stocks.
“I’ve been covering the tech industry since 1994 and I’ve never seen an environment so reliant on one company to deliver its services,” said Inge Heydorn, a partner at GP Bullhound, which also Owns Nvidia and AMD stock.
“AI is really the last pillar of growth and everyone is relying on it. If Nvidia shows weakness, we could be facing a sharp correction in the market.”
Wall Street expects the chip company’s third-quarter revenue to rise about 110 percent to $12.5 billion (roughly 103.84 billion rupees), according to Refinitiv. Only once in the past two years has Nvidia forecasted lower-than-expected revenue.
Citi analysts said last week that they were only modeling revenue of around $12 billion (Rs 9,968.7 crore), but buy-side expectations had risen to $14 billion (Rs 116.3 crore).
At least 10 brokerages raised their price targets on the stock last week, pushing the median estimate to $500 (Rs 41,500), 15.5 percent above its last close.
While the company’s 12-month forward price-to-earnings ratio surged above 80 after the company released its forecast for second-quarter revenue growth of more than 50% in May, the ratio has since fallen as analysts raised their earnings estimates.
Currently, the company trades at nearly 40 times the market’s estimated earnings for the next 12 months, well above AMD’s 29 times.
Investors will be watching sales of Nvidia’s data center unit, which houses the much-touted H100 chip for artificial intelligence, to see whether its valuation is justified.
supply and demand divergence
Nvidia is only able to meet half the demand, with its H100 chip selling for twice its original price of $20,000 (about Rs 1.6 lakh), analysts said, adding that the trend is likely to continue for several quarters.
Still, there are concerns about economic growth as some of the surge in demand comes from China, where companies are hoarding chips for fear of more U.S. export curbs.
“I think the risk of losing business in China is not reflected in the numbers, which is also a bit disturbing,” Haydorn said.
The supply-demand divide could also lead some buyers to rival AMD, which is looking to challenge Nvidia’s most powerful offering for AI workloads with its M1300X chip.
“AMD’s chips could be 50% cheaper than Nvidia GPUs, and companies like Meta or Google might look to cut costs,” Piper Sandler’s Harsh Kumar said.
AMD expects the chip to start shipping in the fourth quarter and could control about 10 percent of the AI chip market next year, analysts said.
But they warned that AMD faces an uphill battle to catch up to Nvidia’s software CUDA, which has become the industry standard in artificial intelligence and holds a significant lead over the company’s similar products.
“Historically, in semiconductors, the leader has always had 70 or 80 percent of the market, but customers always want to keep a second source so the leader doesn’t overcharge, and here’s The second source is AMD.” .
© Thomson Reuters 2023
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