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NVIDIA's Q2 Earnings Uphold AI Frenzy for the Long Term

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Wall Street witnessed a strong rally in technology stocks in the first half of 2023, supported by an impressive adoption of artificial intelligence (AI). However, a section of technical and financial experts has warned that the AI space is much hyped and likely to form a bubble.

Goes without saying, market participants were eagerly waiting for the quarterly financial numbers of AI-giant NVIDIA Corp. (NVDA - Free Report) . On Aug 23, after the closing bell, the company reported blockbuster second-quarter fiscal 2024 earnings results. Moreover, a robust guidance reiterated that the AI boom to continue for a long time.

The AI market has gathered pace in the past few years buoyed by the rapid penetration of digital technologies and the Internet. Importantly, COVID-19 acted as a major catalyst. Social distancing and lockdowns were the key features of the pandemic-ridden period between 2020 and 2022. People across the world have no option but to rely on Internet and digitization for survival.

This enormous opportunity compelled technology behemoths to invest significantly in R&D activities, especially in the high-end AI space. This space received tremendous demand from end-use verticals like automotive, healthcare, banking and finance, manufacturing, food and beverages, logistics, and retail to name a few.

Strong earnings results of NVIDIA in the recently reported quarter confirm this trend. Quarterly adjusted earnings of $2.70 per share, surpassed the Zacks Consensus Estimate of $2.09 per share. This compares to earnings of $0.51 per share a year ago.

NVIDIA posted revenues of $13.51 billion for the quarter, outpacing the Zacks Consensus Estimate by 20.89%. This compares to year-ago revenues of $6.7 billion. Management sees third-quarter revenues of $16 billion versus the Zacks Consensus Estimate of $12.34 billion.

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the worldwide leader of the GPU chipset has shifted its focus from PC graphics to AI- based solutions that support high-performance computing, gaming, and virtual reality platforms.

At present, NVIDIA is the largest global manufacturer of generative AI chipsets, The company's A100 and H100 AI chips are used to build and run AI applications, including OpenAI's ChatGPT. NVIDIA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CEO Jensen Huang said “During the quarter, major cloud service providers announced massive NVIDIA H100 AI infrastructures. Leading enterprise IT system and software providers announced partnerships to bring NVIDIA AI to every industry. The race is on to adopt generative AI.”

The market for AI is expected to show strong growth in the coming decade. Its current size of nearly $200 billion is expected to grow to nearly $2 trillion by 2030 as estimated by several research agencies.

Aside from NVIDIA, other major generative AI chipset developers are Advanced Micro Devices Inc. (AMD - Free Report) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) . Tech-giants like Microsoft Corp. (MSFT - Free Report) and Alphabet Inc. (GOOGL - Free Report) have announced that they are developing applications on their own generative AI tools and software.

The chart below shows the price performance of five above-mentioned stocks in the past month.

Zacks Investment Research
Image Source: Zacks Investment Research

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