Nvidia has the sector linked to Artificial Intelligence tied and well tied. Its expansion on the stock market is not at all a coincidence, beyond the fact that a long-term speculative bubble may be brewing, but rather the result of finding a dominating niche for one of the future great revolutions of humanity. He has control of the command and everything indicates that he will continue like this in the near future.
The results of the technology company specialized in graphics processors, chips for accelerated computing and AI, were truly spectacular for market followers: sales that rose 265% compared to the same period of the previous year and a net profit that multiplied almost by 8 times, along with a gross margin of 76%. Firm and very constant step.
It’s no surprise that the company’s shares have soared 63% so far in 2024, and more than 238% in the last year. The appetite to bet on tomorrow’s potential winner is getting stronger. So much so that the company has become the third largest market capitalization of the S&P 500, Wall Street’s benchmark index, reaching 2 billion. Only behind Microsoft and Apple, which are in the 3 billion club.
Nvidia designs and sells graphics processing unit (GPU) chips that are used in data centers and serve artificial intelligence applications. Interest in AI has skyrocketed in recent months, possibly thanks to the viral nature of OpenAI’s ChatGPT.
But the most notable thing about Nvidia and why its bubble component in stock market terms can expand further is not only because of the competitive advantage over competitors such as Intel or Advended Micro Devices, whose chips have not yet given the great qualitative and quantitative advance. . of the H100, the star chip of the firm led by Jensen Huang, but because among its main clients are big tech such as Alphabet, Microsoft, Amazon or IBM.
The fact that the technology sector needs Nvidia chips to continue scaling its businesses offers the company a fundamental role for the future. It establishes him as the main representative of the implementation of generative artificial intelligence throughout the world. At least for now.
In its latest quarterly accounts, Nvidia identified important clients within its business, including automobile companies and banking entities. Regarding the former, Danny Saphiro, vice president of Automotive at the technology company, pointed out the great opportunity that exists in a recent conference and in which he spoke about the scalability of this line of business in the long term.
“There is a huge amount of data that is generated from all the cameras in the car, the radar, etc.” and that has to be processed in real time…” he began explaining. “That’s where Nvidia comes in, providing the power to take all that data, make sense of it and understand exactly where the lanes are, where the potential hazards are, being able to read the signs,” he added.
Regarding the impact of the Banking Sector, the company itself also maintains a fairly positive line: “Banks have the ability to use generative AI to increase productivity, expand services, reduce risk and drastically improve customer service. That is where Nvidia would play a leading role.
Other big players in the sector that take advantage of the ‘furor’ of Nvidia
However, Nvidia’s ability to be fundamental for other companies linked to the artificial intelligence sector is total. Proof of this is the boom that TSMC or ASML are having on the stock market. The first of them has even managed to sneak into the top 10 in market capitalization, surpassing Tesla. A milestone and one that is motivated by the AI rally.
As CNBC recently reported, there is a clear explanation for this: Nvidia does not manufacture its own chips. Instead, it relies on TSMC, the world’s most advanced chipmaker, to make its GPUs. And TSMC depends on ASML’s machines, needed to make the world’s most advanced semiconductors. All the gear is quite clear.
Nvidia’s optimistic second-quarter forecasts have reinforced expectations that orders will increase from companies like TSMC, which in turn rely on ASML equipment. “We have achieved substantially higher supply for the second half of the year,” Nvidia CFO Colette Kress said on Wednesday’s earnings call.
Nvidia is the leader in AI chip design, but it depends on TSMC, the world’s largest and most advanced contract chipmaker. TSMC makes chips for a plethora of companies, including Apple, for example.
Meanwhile, ASML is the only company in the world that can manufacture and sell its $200 million extreme ultraviolet (EUV) lithography machine. This tool is necessary to manufacture cutting-edge chips, such as those needed by Nvidia for its high-end GPUs. The long-term path, at least for now, seems fairly clear for the sector.
