Nvidia hid its vulnerability

Nvidia’s revenue for the first quarter of 2023 was better than expected. Still, the forecast catalyzed investors’ imaginations: Sales in the second quarter totaled $11 billion, compared to the $7.2 billion that analysts had expected. This is an affirmation of the rapid demand for all solutions with artificial intelligence (AI) – the company, as the manufacturer of the chips that power these products, is benefiting from fashion exceptionally.

Jensen Huang, president of Nvidia, admitted in an interview with analysts that he sees exceptionally high demand for requests for chips used to rebuild databases so they can handle accelerated computations and generative AI. The demand may continue for years, which will help the company not only achieve record results, but also compensate for the negative effects of the collapse of its core business, that is, the sale of graphics cards. The company announced some time ago that demand for technology goods was slowing and the market saturating with components.

Time is full of records

At the beginning of 2023, when Chat GPT-3 saw the light of day and the AI ​​trend gained momentum, investors chose Nvidia as the main beneficiary of the new trend. The chips you sell are very conducive to parallel computing, which is why they are suitable for training AI, which is to bombard it with as much information as possible.

Nvidia’s share price doubled this year before the new forecast was released, making the company the number one growth performer in both the S&P 500 and Nasdaq 100. An upbeat quarterly report boosted the valuation by another 30%, making the manufacturer’s market share even larger. of its competitors, Intel and AMD combined. It is worth noting that Intel achieved twice the revenue of Nvidia last year.

Nvidia’s extremely high valuation is directly related to the expectations raised. Currently, the company is trading at 61 times higher than expected revenue in the next 12 months, making it one of the most expensive in the Nasdaq 100.

Change of approach

During the conference, the Nvidia president said that the use of technology related to artificial intelligence is in its infancy, and the real demand for it, especially in specialized industries, has not yet emerged. The company has created several websites and tools to promote the use of AI among a broader group of customers, allowing it to reduce its reliance on Microsoft and Amazon, whose cloud businesses may soon become saturated.

The fact that projections (such as an estimated 75% increase in profits from database services over the next year) are realistic is underlined by the fact that Nvidia maintains a stable relationship with TSMC, a major parts supplier. Nvidia CFO Colette Kress said that the company has secured a significant increase in the supply of parts related to artificial intelligence, which is expected to be visible already in the second half of 2023.

Nvidia is investing heavily in the business that powers cloud solutions at a time when weak demand for PC components is having a devastating impact on its core business, which sells graphics cards, affecting overall results. Nvidia’s revenue for the first quarter of the fiscal year ending April 30 was $7 billion, which was 13% higher than a year earlier. weaker y/y. Profit from the sale of graphics cards decreased by 38 percent during this time. On an annual basis to 2.24 million US dollars.