Nvidia’s (NVDA -0.10%) shareholders have basked in a remarkable rally throughout 2023. The chipmaker’s stock price has surged an astonishing 205% year to date. Investors have rightly hailed Nvidia as the foremost beneficiary of the AI revolution to date. However, detractors contend that Nvidia’s surge is on the verge of ebbing, asserting that its share price has surged too swiftly and too far.
Yet, this skepticism presents a golden opportunity. Here’s why this tech titan is poised to deliver further gains fueled by artificial intelligence to its investors in the years ahead.
1. Unprecedented Demand for AI Chips
Enterprises are racing to blueprint their AI strategies, propelled by the allure of OpenAI’s famed ChatGPT. This enthusiasm has spurred a quest to integrate generative AI into business operations. But here’s the challenge: a scarcity of state-of-the-art AI computing chips.
Reports indicate that wait times for Nvidia’s revered AI processors have stretched to a daunting eight months. This glaring demand-supply mismatch arises from broader supply chain limitations that have engulfed the semiconductor industry.
Furthermore, remarks from Microsoft and Alphabet executives suggest a surge in chip requisitions by major cloud-computing providers. A sentiment echoed by Microsoft’s CFO, Amy Hood, during the company’s earnings call on July 25. Similarly, Alphabet’s CFO, Ruth Porat, hinted at amplified investment in tech infrastructure for the latter half of 2023 and beyond.
Such comments project more substantial sales projections for Nvidia than initially estimated. Notably, analysts at Bernstein speculate that the majority of Nvidia’s projected AI chip sales for the current quarter could be attributed to orders from just four entities: Microsoft, Alphabet, Meta Platforms, and ByteDance (owner of TikTok).
Recognizing this escalating demand, Nvidia is scaling up chip production. This surge in supply, expected in the upcoming year, could catapult Nvidia’s data-center revenue to potentially quadruple, reaching up to $90 billion in 2024, as estimated by KeyCorp analyst John Vinh. Consequently, Vinh foresees Nvidia’s stock price ascending nearly 25% to $550.
2. Strengthening AI Dominance Through Innovative Chip Design
Amidst mounting rivalry between Advanced Micro Devices and Intel, Nvidia maintains a firm grip, commanding 75% of the advanced AI semiconductor market, as noted by Bank of America. Relentless in its pursuit of progress, Nvidia is set to augment its standing with the impending launch of “Superchips”—an innovation destined to extend its technological lead.
Nvidia unveiled the GH200 Grace Hopper Superchip platform on August 8, a marvel in chip architecture. Fusing high-performance central processing units (CPUs) and graphics processing units (GPUs), the platform also integrates 282 gigabytes of cutting-edge high-bandwidth memory technology—HBM3e—outpacing existing memory tech by 50%.
The platform is engineered to handle intricate generative AI workloads, including expansive language models and applications like ChatGPT. Nvidia anticipates that these performance enhancements will not only reduce the operating costs of AI infrastructure but also make AI technology accessible to a wider audience. The shipping of the GH200 Grace Hopper Superchip platform is scheduled for Q2 2024.
Mizuho analyst Vijay Rakesh echoes this sentiment, envisioning Nvidia’s continued supremacy in artificial intelligence through this novel chip design. Consequently, Rakesh envisions the semiconductor leader potentially amassing AI-related revenue of up to $300 billion by 2027.