Can Nvidia create miracles?

Latest update time：2024-02-19

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When Nvidia Corp., the world's most valuable semiconductor company, reports quarterly results this week, investors and analysts will be pondering a key question: Can it double its revenue for the third consecutive year?

In the history of global software and hardware development, no major technology company has ever achieved this feat.

All seven of the biggest tech stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—doubled their revenue during their start-up years.

But since annual revenue reached billion-dollar heights, no company has doubled its revenue in one year, let alone two years in a row. Tesla came close again in 2017-2018 and 2020-2021, with revenue growth of 70% and 80%, respectively.

But even with Elon Musk's wild ride on the electric car roller coaster, Tesla can't match the performance of Nvidia, which has emerged as an important lynchpin for artificial intelligence.

As cloud computing gains popularity and artificial intelligence vendors continue to expand the training of their large language models (LLM), data centers around the world are filling up with Nvidia's graphics processing units (GPUs) and its proprietary CUDA software.

GPUs are ideal for artificial intelligence applications, such as Open AI's ChatGPT, because they are designed to run multiple iterations of the same calculation simultaneously. The waiting list for Nvidia GPUs made by TSMC is long. As spending on AI technology increases significantly, waiting lists will get longer.

Nvidia's earnings call on Wednesday is expected to show annual revenue rose more than 100% to $58 billion ($89 billion) in the year to January 31. This figure is more than double Nvidia's 2023 revenue of $26.9 billion.

The question is: Will the company's co-founder and CEO Jensen Huang lead the market to believe that Nvidia can repeat this remarkable revenue growth in the year ending in January 2025?

Among the 48 analysts covering the stock, some forecast revenue of well over $100 billion for the year ending in January 2025, although the consensus is that revenue will be About $90 billion. The latter figure represents 52% revenue growth, but may not be enough to sustain Nvidia's heady valuation.

Mind you, some people are confident about Nvidia's performance this year. One analyst has a price target of $1,200 on the stock, which closed at $726.13 on Friday.

This month, the company surpassed Amazon to become the world's third-largest company by market capitalization.

The top five companies by market capitalization are currently Microsoft ($3 trillion), Apple ($2.8 trillion), Nvidia ($1.79 trillion), Amazon ($1.76 trillion), and Alphabet ($1.75 trillion).

Nvidia currently trades at 19 times next year's revenue and 35 times earnings. Its gross profit margin is 70%.

One high-profile skeptic of the stock, ARK Investment Management's Cathie Wood, told the Wall Street Journal podcast that "the level of expectations is too high to be met." She also highlighted growing competition from big tech companies like Meta, Tesla, Alphabet and Amazon, which are developing their own AI products.

"They're all developing their own AI chips," she told the podcast. "They are more specialized and specialized, whereas NVIDIA is more general-purpose."

Morgan Stanley analyst Joseph Moore said competition is unlikely to disrupt Nvidia's dominance.

"The shortage of Nvidia chips, and the stress this shortage has caused on the distribution process, has prompted cloud service providers to look for alternatives, and we are seeing both commercial solutions (such as AMD's MI300 chips and Intel's Gaudi 2) as well as custom solutions. Powerful. Chips from cloud service providers," he said.

"Nonetheless, in the (LLM) training, we still think Nvidia is very well-positioned. Cloud service provider customers are very reluctant to be locked into a custom solution because most of them use multiple clouds provider.

"The rapid development of Nvidia's technology also creates a very high bar for competitors to surpass."

Nvidia's H100 chip is the fastest on the market, and it will launch an even faster chip later this year called the B100. Not only is the B100 faster, but it's also expected to be significantly more expensive than the H100.

One competitor to Nvidia that will be taken seriously is SoftBank Group, which is preparing to invest $100 billion to build a new chip company, according to Bloomberg.

SoftBank founder Masayoshi Son, whose personal fortune got a boost from the Nasdaq listing of London-based chipmaker Arm Holdings, is feeling buoyant again after being hit by several years of poor investment performance. . SoftBank owns 90% of Arm. Arm shares soared 90% in three days last week and are now three times the $51 per share price they listed on Nasdaq in September.

Alex Pollak, chief investment officer at fund management firm Loftus Peak, said rivals will find it difficult to catch up to Nvidia's technology leadership.

He said that to meet the demand for AI chips, it must go through TSMC or Samsung because they have the only manufacturing capacity to mass-produce 3-nanometer chips.

"They (SoftBank) can talk all they want about how to build manufacturing capabilities, but building a foundry from this perspective will take about four years," he said.

Pollak, head of Loftus Peak Global Disruption Fund, which owns shares in Nvidia, said artificial intelligence is being adopted by almost every industry, which is stimulating demand for Nvidia chips.

"You know, it (Nvidia) has doubled, but I don't know if it's $100 billion," he said. "But even at $80 billion, it would be four times what it was two years ago. "I'm not prepared to say they can't do it. We have a good location. We tend to hold on to it. "

For Nvidia, doubling revenue this year to $116 billion is an impossible task. But the revenue run rate likely to be released on Wednesday will indicate the likelihood of that mission being accomplished.

Original link

https://www.afr.com/technology/chip-giant-nvidia-s-mission-impossible-20240218-p5f5uw

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