Nvidia bursts bubble talk for good  


Mario Lagos

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Nvidia shares surged past $1,000 for the first time on Wednesday, May 22, after the chipmaker blew away analyst’s estimates for sales and earnings. The AI superpower continued to rally into Thursday, when the company’s market cap climbed by $277 billion, making it worth as much as the GDP of Russia, plus three hundred billion USD. The rally appears to have put to bed talk of an AI bubble, which had worried some investors, who had expressed fears over the gap between Nvidia’s earnings ratio.

Some investors had been comparing the AI gold rush to the dot-com bubble after Nvidia’s share price dipped after touching $950 in March. In April, there were reports of concern over Nvidia’s sustainability, and ‘worried traders’ told Bloomberg they thought orders with the chipmaker could dry up. And “veteran analyst” Jesse Felder said Nvidia would flood the market and ‘end up in the toilet.’

Observers who had argued Nvidia’s best days were ahead of it appeared to be vindicated on Wednesday, with its CEO Jensen Huang declaring, “The next industrial revolution has begun.” But even if Mr Huang is correct, and we stand poised to enter the Fourth Industrial Revolution – Nvidia will have to work hard to beat off challengers eager to claim territory in the multi-trillion-dollar market. 

Nvidia slashes prices in China fight

Celebration over the blockbuster earning reporting might have been put in check after Nvidia was forced to cut the price of its most advanced China chip, Reuters exclusively reported. The outlet reported Nvidia’s H20 chip – tailor-made for the Chinese market – was being squeezed by Huawei. The Chinese government is urging firms to buy Chinese, a move said to ‘cast a cloud’ over Nvidia’s foothold in the market, which has comprised 17 per cent of its revenue this year.

According to the Hong Kong-based South China Morning Post, the H20 is now as much as 10 per cent cheaper than its Huawei equivalent, the Ascend 910B, a fact which should act as a “cautionary note” to investors. Beijing is now subsiding Chinese firms which buy Chinese chips – leaving Nvidia to ‘walk a fine line’ between the Chinese market and US tensions, IG analyst Hebe Chen said. 

Stock split
NVIDIA Stock Split

Nvidia announces 10-for-1 stock split 

On Wednesday, Nvidia announced a stock split and pledged to “make stock ownership more accessible to employees and investors.” In a statement, a company spokesperson said:

“The split will be effected through an amendment to NVIDIA’s Restated Certificate of Incorporation, which will result in a proportionate increase in the number of shares of authorised common stock.

“Each record holder of common stock as of the close of market on Thursday, June 6, 2024, will receive nine additional shares of common stock, to be distributed after the close of market on Friday, June 7, 2024. Trading is expected to commence on a split-adjusted basis at market open on Monday, June 10, 2024.”

In short, Nvidia investors will see their shareholding increase tenfold while the price of each share falls – resulting in no overall change in value. While reducing the individual share price could make the stock more accessible, Naomi Buchana for Investopedia said there could be an ulterior motive for the move. She said:

“Another reason some companies might undergo a stock split is that the lower price could help add them to an index like the Dow Jones Industrial Average (DJIA). Price-weighted indexes like the Dow tend to avoid adding high-priced stocks as movements in price could have an outsized impact on the index.”

AI boom shows no sign of stopping  

Nvidia’s blockbuster earnings report was a sign that the AI boom – apart from having more road to run – might not have got its shoes on yet. That’s the view of Dan Ives of Wedbush Securities, who predicted:

“The AI revolution starts with Nvidia, and in our view, the AI party is just getting started with the popcorn getting ready.”

 Taiwan chipmaker TSMC, a key supplier of Nvidia, said its sales could grow 10 percent amid what its senior VP described as “a new golden age of opportunity“ and added the foundry sector could see increases of 15 to 20 percent each year going forward. But it’s not just Nvidia set to benefit from the boom, with massive growth expected over the next decade.

 In the UK alone, the AI market is worth an estimated £16.8 billion – but by 2035, it is forecast to be worth more than £800 billion, according to the International Trade Administration  –  an almost fivefold expansion – with the global market expected to grow a third in the next six years. In this climate, Nvidia’s rival AMD is also celebrating growth and is reportedly planning to unveil a new next-gen AI PC in the second half of this year.

 A 900 percent surge in Samsung’s profits has also been attributed to the AI boom, with the technology giant’s semiconductor division now its biggest earner. Samsung is planning to increase its production of high-end chips by 300 percent this year and has credited strong sales of its S24 phone to its AI functions

Is Nvidia still a buy? 

As of Thursday, Nvidia shares were up 116 percent on the year to date. While some might be wary of buying it at its peak, others say there’s plenty of scope for it to go higher. The Motley Fool says there are several “good reasons to buy Nvidia”, including the upcoming release of new and more powerful generative AI architecture. The outlet reported:

“There is such strong demand for Nvidia’s products that large customers waiting for Blackwell would actually be a good thing. It would allow the long line of smaller customers to jump in now with new orders. On top of that, bigger customers like Meta Platforms, Tesla, and others will still be buying when Blackwell sales start later this year.

“There’s a second good reason long-term investors should consider owning Nvidia, even after the stock’s sharp rise: Nvidia’s automotive segment revenue jumped 17 percent from the previous quarter and 11 per cent from the prior year. But that segment is still a small contributor compared to the data centre business.”

On Thursday, the stock also held a ‘strong buy’ rating with Zacks, which said it expected an “above average return” from Nvidia in the coming months. As per TipRanks, the stock had 37 buy ratings, three hold ratings, and no sell ratings from analysts in the aftermath of its blowout earnings report.

 Is AI the Fourth Industrial Revolution? 

Nvidia’s recent performance has put talk of an AI bubble to bed. The chipmaker’s share price represents both real fundamentals and the value of the role AI will play in the future. Nvidia’s sustained growth and impressive earnings appear to have vindicated the optimism of its proponents. CEO Jensen Huang’s bold statement that we are ‘on the verge of a new industrial revolution’ highlights just how massive that potential could be.

With projections of massive market growth, Nvidia’s continued innovation and market expansion, particularly in automotive and data centres, has served to convince some who were on the fence about the staying power of AI. The company’s stock retains strong buy ratings, reflecting confidence in its ongoing capacity to deliver substantial returns.

The AI sector’s rapid expansion could hold significant rewards, and Nvidia’s dominant position could enable it to remain a key player in this growing market.

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Mario Laghos​

Mario Laghos is a journalist. His work has appeared in the Critic magazine, the Daily Express, and the Daily Mail

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