A stronger-than-expected forecast sent Nvidia stock to a record high and boosted the entire semiconductor industry. Artificial intelligence is becoming the course driver.
A look at the share price of the chip manufacturer Nvidia shows the recent euphoria about artificial intelligence (AI): Since the beginning of the year, the paper has climbed by an incredible 161 percent. Yesterday alone, after a strong outlook from the company, they rose at times by more than 26 percent to a record high.
AI boom causes demand for chips to explode
“The word of the month is AI,” said Sam Stovall, chief strategist at analytics firm CFRA. How does the semiconductor industry benefit from the mega trend? “The AI wave is reaching shore earlier,” wrote Blayne Curtis of British bank Barclays yesterday. Other companies are also likely to have higher expectations of their AI business, but Nvidia is picking up almost everything this year, according to Curtis. The AI boom is giving the US group exploding demand.
Nvidia expects quarterly revenue 50 percent above analysts’ expectations. Because programs like ChatGPT require a lot of computing power, the specialist for graphics cards, servers and AI chips is assuming surprisingly high revenues of eleven billion US dollars for the current quarter. The past quarter also went better than expected.
Nvidia soon in the one trillion dollar club?
“No company can build a state-of-the-art AI data center without the technology and all the software from a cloud computing provider, but we have all those capabilities,” said Nvidia CEO Jensen Huang. His group now prefers to sell complete AI supercomputers instead of individual chips. After the announcement, analysts raised their price targets sharply and described the forecast as a “hammer outlook”.
The market value of the group then skyrocketed by around 190 billion US dollars in one day. For comparison: The German stock market leader SAP is currently worth around 160 billion dollars (148 billion euros). In the ranking of the most valuable companies in the world, Nvidia is still in sixth place after the largest price jump in six and a half years with now 938 billion dollars, but was able to significantly increase the gap to Warren Buffett’s investment company, Berkshire Hathaway. In addition, the semiconductor group is about to enter the exclusive club of trillion dollar companies.
Chip power for more computing power
The global game about artificial intelligence has been gaining momentum since the great success of ChatGPT. Technology companies are experiencing a real boom due to the high computing power that AI requires. Advanced semiconductors, also called chips, can enable scaling of the computing power used in what are known as neural networks. That increases the demand.
In Nvidia, the markets see the biggest beneficiary because the company’s technology is used for various AI integrations from self-driving cars to data analysis in healthcare to robots. Its high-performance graphics processors (GPU) are already widely used in data centers. According to its own statements, Nvidia was already preparing for the possible increase in market demand months before ChatGPT.
With the unexpectedly strong quarterly figures and the improved outlook, Nvidia has now caused euphoria across the industry. “It is now clear that AI is the start of a major investment boom and will solve real problems,” said David Russell, manager at online broker TradeStation. “The technology has immediate applications and powers large companies that are already the backbone of the stock market.” Rival AMD, for example, posted a plus of ten percent in the after-hours US business in the slipstream of the Nvidia rally.
Intel lags behind
The AI specialist C3.ai, which sells software solutions and integrates tools such as ChatGPT or GPT-3, and Palantir saw a similar upward trend. The data analysis specialist recently presented its own AI platform. The papers of the competitors Synopsys, Micron Technology, Broadcom and Applied Materials also went up sharply. The European chip supplier and industry heavyweight ASML also gained significantly in value.
“Investors are always looking for growth sectors, and at the moment that’s semiconductors,” said CFRA Chief Strategist Stovall. But not all companies in the industry benefited from yesterday’s euphoria. Intel’s shares, which had previously run less strongly, gave way. Apparently, the group is initially without a product that can compete directly with the latest chips from Nvidia and the new AI chip Instinct MI3000 from AMD. Its “Falcon Shores” chip, which is designed to support high-performance computers and AI, is not expected to hit the market until 2025.
The largest German company in the industry, Infineon, was one of the better stocks in the leading index DAX in 2023, but also fell by 1.6 percent. The chip producer recently announced that it would start two European research projects on power electronics and AI with a total volume of 130 million euros at the Villach site in Austria. The goals are greater energy efficiency and fewer greenhouse gas emissions, and AI should pave the way for secure supply chains and competitive manufacturing.
With information from Till Bücker, ARD finance department.