NVIDIA Is Miles Above AMD & Intel When It Comes to AI Says Analyst

Chip designer NVIDIA Corporation is the "driver's seat" when meeting the demand for artificial intelligence, according to an analyst, as we head into an ever-crucial earnings release at the close of the market later today. NVIDIA's shares have appreciated by a whopping 228% year to date, as the price has more than tripled this year in the wake of the massive success of the AI chatbot ChatGPT. The firm's stock has been helped by its total addressable market (TAM) estimates for the data center AI segment and the revenue guidance for this quarter, which have allowed the shares to return more than six times the returns of the tech-heavy NASDAQ 100 index.

NVIDIA Slated To Be One Of The Few Firms That Will Benefit From Initial Wave Of AI Demand, Says Analyst

NVIDIA's earnings for the first quarter of its fiscal year 2024 were a blockbuster by all accounts. Released in May, the results saw the company report a 19% sequential growth, beating analyst estimates by a strong 11%. At the same time, NVIDIA guided $11 billion in revenue for the second quarter, which not only significantly surpassed Wall Street's revenue guidance by more than $3 billion but also saw the firm predict the first annual revenue growth in its three latest quarters.

The stock market, naturally, was thrilled. In the immediate aftermath of the earnings report, the shares gained more than 27% in aftermarket trading. As a whole, NVIDIA's shares, which had closed at $305 on the day of the earnings release, gained $96 over the next two days for a final closing price of $401. The stock had opened at a modest $143 in January, and since then, the shares have appreciated by 326% on the market year to date.

NVIDIA's share price gain this year shows that the market is quite optimistic about the AI wave.

Adding to the current hype surrounding NVIDIA and AI, Bernstein analyst Stacy Rasgon believes that NVIDIA is a class apart from all other technology companies when it comes to meeting the first wave of AI product demand. He believes that the firm's revenue guidance is based on the potential orders from its four biggest customers, as the guidance for the previous quarter implies $8 billion in revenue for the data center. He believes this can be met when we consider the capital expenditure guidance from major players in the industry.

At the same time, the analyst cautions that the cyclical nature of the semiconductor industry and the fact that tight supplies often lead to over-ordering can be concerning looking forward. The over-ordering, which the chip sector faced last year as semiconductor firms tried to navigate tight supplies in the wake of demand uptick due to the coronavirus pandemic.

However, Rasgon adds that he is not worried about a demand overshoot for the next 12 to 18 months as the industry is still in the early stages of the AI demand cycle. According to the analyst:

So at some point, yeah. So I mean, right now, demand is off the charts, but again supply is very limited. So customers can't get what they want. And there's a general behavior that happens in semiconductors and lots of other places, it's called double ordering. When people can't get what they want, they order more.

This is the toilet paper situation from like, 2020. It's the same kind of dynamic. And that sort of thing, like forget Nvidia for a minute, just in general, that sort of behavior happens. And so the fact that demand is so strong and supply is so tight right now, you could potentially worry about an air pocket or something.

And with Nvidia, that's one of the primary controversies is is this new level of demand that we see, is that sort of the new baseline for growth? Or is it like pull forward and panic buying and is there an air pocket? And look, at some point, what is the chance that Nvidia will see an air pocket? It's probably 100%. We've seen them before. We'll see it again. I mean, look, the stock may have a 50% drawdown in it again at some point. We've seen those before.

It might be $1,000 to 500, like, I don't know. We'll see it. Am I worried about an air pocket like right now? Absolutely not, like, they're certainly not going to see one this year. My guess is even next year is just fine, like, calendar 25, like, by the time we get there, maybe we'll know a little more. But like, I guess, we'll worry about that a little when we get a little closer. And frankly, the actual run rate that we could be seeing by the time we get there could be materially higher than what we see.

And I will say along those lines, if I'm looking at five years or 10 years, I'm convinced that we'd be talking numbers of that point that are materially higher than what we are talking about today. We are still very early in this whole thing, like, ChatGPT and all this other stuff that's gotten people excited, it's only been here since November. It's less than a year. We are very early on the whole progress of the AI cycle.

They'll probably overshoot. They'll probably undershoot. This is semiconductors. This is why we get cycles in the industry. I'm not worried about at least the next 12 to 18 months, maybe even longer, I think, we're ok.

NVIDIA is set to report its earnings at the close of the market today, and analysts surveyed by FactSet are expecting the firm to report $11.19 billion in revenue and adjusted earnings per share of $2.08. The EPS alone would mark a strong 300%+ growth over the previous quarter figures, and allow the firm to overcome a downturn that it has been suffering from along with its industry peers.

Written by Ramish Zafar