Nvidia (NVDA) shares soared Thursday, touching the highest levels in more than a year, after CEO Jensen Huang touted the potential of the $600 billion market for AI chips amid what it called an "inflection point" for the world's fastest-developing technology.
Nvidia unveiled a new AI "supercomputer", known as Nvidia DGX, that can allow business customers to access AI-related technology through cloud computing providers such as Microsoft (MSFT) and Oracle (ORCL), essentially creating a new market for "AI-as-a-service" to thousands of companies around the world.
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That ability to address the new AI investment explosion, sparked in part by the unveiling of the ChatGPT chatbot earlier this year, could put Nvidia in a leadership position within a market that could be worth more than $600 billion.
Gartner, the management consultancy group, predicts so-called generative AI will account for around 10% of all data produced by the year 2025, up from just 1% in 2021. Analysts at KGI see this as adding between $5 billion and $6 billion to Nvidia's top-line revenue within the next three years.
"There's no question that this is a very big moment for the computer industry. Every single platform change, every inflection point in the way that people develop computers happened because it was easier to use, easier to program and more accessible," Huang told investors on a conference call late Wednesday after the group's better-than-expected fourth quarter earnings.
"This happened with the PC revolution. This happened with the internet revolution. This happened with mobile cloud," he added. "There's no question this is, in every way, a new computing era. And so I think this ($600 billion market estimate) really is even more realizable today and sooner than before."
Nvidia shares were marked 14% higher in late Thursday trading and changing hands at $236.61 each in a move that values the Santa Clara, Calif., tech group at around $582 billion. The stock hit a one-year high of $238.88 earlier in the session.
Oracle shares were up 2.7% at $88.67 while rival chipmakers Advanced Micro Devices (AMD) and Micron Technology (MU) rose 4.2% and 3.1% respectively.
In terms of fourth quarter earnings, Nvidia posted an adjusted bottom line of 88 cents per share, a figure that was down 33% from a year earlier but topped Wall Street forecasts by around 7 cents. Revenue, the chipmaker said, came in at $6.05 billion, again besting analysts' estimates thanks to solid gains in its gaming chip business.
Looking into the current quarter, Nvidia said revenue would likely rise 7.4% on a sequential basis to $6.5 billion, with gross margins expanding 80 basis points (0.8 percentage point) to around 64.1%.
Data-center revenue was up 11% from a year earlier at $3.62 billion, but fell around 6% from the previous quarter amid a pullback in cloud spending and the Covid disruptions in China.
Gaming revenue rose 16% from the prior quarter to $1.83 billion, but was still down more than 47% from a year earlier, thanks in part to improving demand for its RTX 40 Series GPUs.
A longer-term benefit could also come from Nvidia's recent agreement with Microsoft, established earlier this week, that would allow it to stream games such as "Call of Duty" across is GeForce Now service if it's given permission to complete its planned $69 billion takeover of Activision (ATVI) by regulators in the U.S. and Europe.
“Combining the incredibly rich catalog of Xbox first party games with GeForce NOW’s high-performance streaming capabilities will propel cloud gaming into a mainstream offering that appeals to gamers at all levels of interest and experience,” said Nvidia Senior Vice President Jeff Fisher.
