In the tech world right now, chips are hot. And no company is more associated with semiconductors than Nvidia Corporation (NASDAQ: NVDA).
The company has recently garnered significant attention from the investment community, following another blowout earnings report for Q2 2023 and a promising outlook that cited rising demand for Artificial Intelligence (AI) chips.
Nvidia’s stock price gained 3.2% at the market close on Wednesday. Shares jumped about 7% in after-hours trading, following its earnings release.
The Nasdaq-listed company’s share price is up 229% year-to-date (ytd), with Nvidia’s market value now reaching US$1.16 trillion at the close of trading on Wednesday.
So, for growth investors in Singapore, here are five reasons to consider investing in NVIDIA, along with some associated risks.
- Strong performance and forecast from Nvidia
Nvidia posted record second-quarter revenue of US$13.51 billion, 88% higher than the previous quarter and more than double from a year ago.
It also blew away consensus expectations of US$11.2 billion in revenue.
In line with the higher revenue recorded, the company’s net income dramatically rose to US$6.18 billion from US$656 million last year, which is a nine-fold jump.
Compared to the first quarter’s US$2.04 billion, this is also a significant quarter-on-quarter increase.
Earnings per share for the quarter were US$2.48, up 854% from last year, surpassing expectations of US$2.09 per share.
Furthermore, projections for the next quarter are promising, with the company expecting revenue of US$16 billion.
- Demand surpassing supply
The company is witnessing an era where the demand for Generative AI is outpacing Graphics Processing Unit (GPU) supply.
This is a sign of a strong market appetite for Nvidia’s products.
Nvidia’s CEO, Jensen Huang, announced, “We’re entering a new computing era where businesses globally are shifting towards accelerated computing and generative AI.”
This claim holds weight. Nvidia, with its A100 and H100 AI chips, has taken the lead in the generative AI space.
These chips, used in platforms like OpenAI’s ChatGPT, support advanced AI tasks.
As the demand for these AI applications has skyrocketed, the infrastructure has evolved to support this growing trend.
- Data centre growth
Revenue from the Data Centre segment showed impressive growth, driven by robust demand for H100/A100 units.
These units are essential for cloud providers, consumer internet companies, and large-scale businesses. The demand is expected to continue well into 2024.
- Gaming and ProViz segment
Both the Gaming and ProViz segments have performed well.
Nvidia’s Gaming revenue stood at US$2.5 billion, marking an increase due to the ramping up of the 40-series GPUs.
Meanwhile, ProViz is a line of professional graphic cards designed for use in workstations.
- Leadership position in AI chips
NVIDIA’s GPUs are fundamental to the booming AI and deep learning sectors.
The company’s software framework and hardware are preferred by many AI researchers, startups, and data centres because they significantly accelerate the computational process necessary for large-scale AI tasks.
As AI continues to permeate various industries from healthcare to finance, Nvidia’s pioneering position provides it a strategic advantage, making it poised to benefit greatly from the AI revolution.
Impressive growth and promising outlook, but monitor risks
Nvidia has showcased impressive growth, and its future projections are promising.
Its stock is a compelling choice for investors, especially considering the ongoing AI and GPU demand trends.
However, investors should watch out for the expensive valuation of Nvidia shares, which are trading at a price-to-earnings (PE) ratio of around 45 times.
There are also some downside risks, which include inventory concerns, a highly competitive market, China export restrictions, and a slowdown in consumer spending.
As always, it’s crucial for retail investors to do their own research and consult with financial advisors before making any investment decisions.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
