by Peter Jones, CFA
Senior Vice President, Research and Portfolio Management
The most prominent news for the markets this week came from semiconductor company Nvidia, as they announced their most recent earnings. Nvidia is at the tip of the spear for the excitement surrounding artificial intelligence investing. The company’s dominant market share in the chips used to train artificial intelligence models and build out artificial intelligence infrastructure has driven exorbitant growth for the company in the last couple of years.
On Thursday, Nvidia exceeded even the most bullish investor expectations by generating 400% year-over-year revenue growth. While the bar was high, investors piled into the stock, resulting in a 16% increase in the stock price. In market value terms, Nvidia’s value increased $280 billion in a single day, the largest increase on record.
At the time when ChatGPT was initially released to the public, Nvidia’s run-rate annual revenue was about $27 billion, its market value was $350 billion, and it traded at a valuation of around 40x forward earnings. As of this writing, investors expect Nvidia to generate $130 billion in sales next year and its market value is $2 trillion, recently surpassing Amazon and Google as the third-largest company in the world. Despite the nearly 600% gain in the stock, Nvidia trades at a cheaper valuation today than it did when ChatGPT was released, currently around 30x forward earnings.The fact that profit growth has outpaced share price appreciation all but extinguishes any comparisons to the dot-com bubble.
Nevertheless, while the historic run in Nvidia and other artificial-intelligence-themed companies could sustain for some time, our view is that the benefits of artificial intelligence will accrue not only to the innovators but also to the adopters that integrate the technology into their businesses. In other words, the artificial intelligence investment opportunity will not only be in the companies making the “picks and shovels” but also in the companies using the picks and shovels.
We’ll remind our Beaver fans that Nvidia co-founder and CEO Jensen Huang is an Oregon State University alum and recently donated $200 million to fund a “supercomputer” on campus in Corvallis, making Beaver Nation one of the primary research universities for applications of artificial-intelligence technologies.
Takeaways for the Week
Nvidia earnings this week give plenty of fuel to the market’s artificial intelligence (AI) fire
As time passes, the benefits of AI technology will accrue not only to those that provide the technology and its infrastructure, but also to the companies integrating AI into their business processes