Nvidia's Projection of AI-driven Chip Demand Leads to a $200 Billion Increase in Market Value

Nvidia has issued a positive revenue forecast for the current quarter, indicating confidence that the leading global chip manufacturer can maintain successful operations by prioritizing equipment that drives artificial intelligence.

Nvidia, a technology company based in the United States, has experienced a substantial increase in its valuation, rising by almost 25%. Nvidia (NVDA) has been recommended in our sister publication, World Opportunity Investor. This growth can be attributed to the company's optimistic forecast of an upswing demand for its computer chips. The demand is expected to arise from the increasing need for artificial intelligence products, including ChatGPT.

Following the announcement, Nvidia's stock experienced a significant surge of 27% during after-hours trading, positioning the company for a market capitalization exceeding $900 billion upon the opening of Wall Street on Thursday. This represents a notable increase from the premarket trading value of $755 billion on Thursday.

Should Nvidia's premarket gains persist, the company's market capitalization would surge by over $200 billion, representing the largest single-day increase ever recorded. As of November 2022, Apple's market capitalization surged by a staggering $191 billion, setting a new record.

In 2023, the share price experienced a significant increase, more than doubling due to the widespread optimism surrounding the swift advancements of generative AI products. These require massive data centers full of semiconductor chips to operate.

Late last year, the startup OpenAI unveiled ChatGPT, a chatbot that garnered significant attention for its ability to generate responses to user inquiries that closely resembled human language. However, the chatbot's accuracy has been called into question.

The pace of technological advancement in the field of AI has been remarkably swift in recent months, with the emergence of cutting-edge features such as lifelike images, sound, and video. This has left even the most knowledgeable AI specialists uncertain about this technology's full range of possibilities and potential risks.

Firms spanning various industries are in a competitive rush to demonstrate their plans for integrating artificial intelligence into their current operations. Financial analysts caution that the artificial intelligence technology sector may be experiencing a bubble, while semiconductor companies are becoming more entangled in the geopolitical tensions between the United States and China due to reciprocal limitations on chip exports.

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In 2022, Nvidia encountered challenges due to a deceleration in demand for its graphics chips. The attempted acquisition of UK-based chip designer Arm from Softbank by the party above was unsuccessful due to regulatory intervention, resulting in the deal being blocked. Nonetheless, the stock's value will probably exceed its prior record peak achieved in late 2021 upon the commencement of US market operations on Thursday.

On Wednesday, Jensen Huang, the co-founder and chief executive of Nvidia, expressed that the United States risks inflicting significant harm by imposing trade restrictions. In October last year, the Biden administration implemented export controls that effectively restricted China's access to specific semiconductor chips produced globally through US tools. In response to recent events, Beijing has issued a directive to the operators of critical infrastructure in China, instructing them to cease procurement of products from Micron Technology, a US-based chipmaker. This directive was issued on Sunday.

Despite this, the fervor for artificial intelligence has significantly propelled businesses such as Nvidia, which offers the necessary hardware to operate intricate models containing billions of inputs.

The company announced its financial results on Wednesday, revealing revenue of $7.2 billion for the quarter ending in April. This figure surpassed analyst predictions by 10%. However, it was the predictions of substantial future sales that captivated investors. Nvidia has projected revenues of $11 billion for the quarter ending in July, surpassing Wall Street's forecast of $7.2 billion by over 50%.

As per a communication addressed to the clients by Matt Bryson, an analyst at the investment bank Wedbush Securities, Nvidia has surpassed its previous expectations by a significant margin. In my two decades of covering technology stocks, I cannot recall a semiconductor/hardware company as substantial as Nvidia, with multiple billions in sales, ever presenting a guide that surpasses expectations to this extent.

According to Mark Lipacis, an analyst at Jefferies investment bank, Nvidia's expanding data center revenues are anticipated to exceed the collective sales of central processing units manufactured by Intel and AMD, both of which are established chipmakers.

Huang said he expected his company to benefit from a huge shift in data centers towards more specialized chips made by his firm as companies raced “to apply generative AI into every product, service, and business process.”

According to his statement, Nvidia is substantially augmenting its supply to cater to the escalating demand for its data center products.

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On Thursday, ASML, a semiconductor company based in the Netherlands, and TSMC, a semiconductor company based in Taiwan, witnessed a surge in their share prices subsequent to Nvidia's remarkable earnings report. These two corporations are widely regarded as major contenders in the global semiconductor industry.

Nvidia made an announcement on Wednesday regarding its Q3 earnings and revenue, which exceeded the market's anticipations. The stock of the American corporation witnessed a remarkable surge of more than 24% during after-hours trading, owing to its sales projection of around $11 billion for the second quarter. This projection surpassed the estimates of Wall Street by over 50%.

The recent upswing in Nvidia's stock value can be attributed to the company's distinctive business model, which involves outsourcing chip manufacturing. The production of the company's GPU is reliant on TSMC, a distinguished global chip manufacturer recognized for its cutting-edge technology. The production of advanced semiconductors by TSMC is reliant on the use of ASML's equipment.

Nvidia's optimistic forecast for the second quarter has fueled conjecture regarding augmented acquisition from TSMC, an enterprise that relies on ASML's equipment.

The current upswing in stock prices across the industry highlights the concentrated nature of the semiconductor supply chain.

Nvidia is a significant contender in the AI chip design arena, yet it relies on TSMC, the foremost and highly advanced contract chipmaker globally. TSMC is a renowned chip manufacturer that serves a wide array of clients, including, but not limited to, Apple.

ASML is the only global entity that possesses the unique capability to manufacture and distribute its extreme ultraviolet (EUV) lithography machine, which is valued at $200 million. The use of this specific tool is essential in the manufacturing of cutting-edge microprocessors, which are highly sought-after by Nvidia, a prominent industry leader, for their top-of-the-line graphics processing units.

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                      Nvidia is clearly benefiting from the A.I. boom, says Needham's Gill on Nvidia's earnings beat