As AI Craze Continues, Nvidia Dominates the Market and Doubles Down

Nvidia is soaring this year thanks to demand for artificial intelligence (AI) chips. As the technology takes center stage, companies poised to supply the high-end chips needed to power AI applications will profit. Over the first two quarters of 2023, Nvidia has experienced this profitability for itself, watching its shares soar to record heights.  

At the end of August, the chipmaker’s stock price topped $481, surpassing the record it set earlier this summer. That meteoric rise is partially due to the company smashing expectations in the second quarter, posting a 100% year-over-year increase. The second quarter also topped an already impressive Q1 by 88% as revenues of $13.5 billion were recorded.  

Looking ahead, the third quarter promises to be even more successful. If Nvidia shows that it can sustain its hot streak, the market will surely respond with enthusiasm once again. Thanks to the insatiable demand for AI across sectors, Nvidia forecasts $16 billion in quarterly revenue.  

Market structure analyst Dennis Dick told Reuters, “It might be the most important report of this earnings season. We want to hear that they can build on the amazing quarter they had last year.”  

However, some experts remain skeptical of Nvidia’s inflated stock price. The company’s shares are currently trading at 16x forward revenues. Even if Nvidia doubles its revenue next year, its stock is still far outpacing its actual performance. On top of this, analysts speculate tech companies are overbuying GPUs before they know how to turn a profit with the products they’ll use them to develop. Even so, if these firms don’t buy now, they risk missing out or falling behind competitors who took the early leap.  

Betting On Continued Growth

Solo investors and hedge funds alike continue to bet on Nivida. Why? Largely because AI is driving not just Nvidia’s stock price, but the market at large. The technology is exciting and has generated a significant amount of hype around the world for its potential to reshape how both business and entertainment are done.  

For most top tech companies, AI is the biggest spend category in their budget. Whether it’s fleshing out data centers, developing in-house generative AI chips, or scaling consumer-facing applications, AI is everywhere.  

According to Nvidia CEO Jensen Huang, the AI boom is far from over. Huang predicted in late August that hype for AI will continue well into 2024 and followed this prediction by putting the company’s money behind it. Nvidia announced a plan to buy back $25 billion of its shares as it looks toward long-term market domination. That buyback is funded largely thanks to soaring demand for its H100 GPU, which is used to power data centers and train AI models.  

During the Q2 conference call, Huang told investors, “These two fundamental trends [a switch from traditional data centers to ones built around Nvidia chips and generative AI] are what’s behind everything that we’re seeing, and we’re about a quarter into it.”  

“It’s hard to say how many quarters are ahead of us, but this fundamental shift is not going to end. This is not a one-quarter thing,” he added.  

Moving forward, Nvidia’s biggest challenge will be securing the supplies and capacity it needs to meet demand. As fast as it can make chips, customers will be lining up to buy them. So establishing a strong, reliable supply chain and manufacturing process is key.

Fortunately, Nvidia appears to have this covered. “We’re getting great cooperation from our supply chain. And it’s a complicated supply chain,” Huang says, “People think it’s a GPU chip. But it’s a very complicated GPU system. It’s 70 pounds. It’s 35,000 components. It’s $200,00.”

For better or worse, the AI craze is here to stay. Chip companies not named Nvidia are racing to secure their share of the growing market, but they’re all competing for second place unless something changes drastically. For now, Nvidia’s historic bets on AI have paid off and it is the number one supplier of the AI gold rush. Time will tell if its renewed bet on the technology yields even greater dividends in the future.