Nvidia CEO Jensen Huang Says ‘The New Era of Computing Has Begun’ – How Higher Can Stocks Go? | Fool

Thanks to all the trouble surrounding synthetic AI (like ChatGPT) this year, Nvidia (NVDA -1.74%) is already the world’s most valuable semiconductor company with a market capitalization of nearly $1.2 USD thousands of billions. This puts it in a class far beyond its closest competitors and puts it on par with tech giants like Microsoft, Apple, AlphabetAnd Amazon.

However, what’s interesting is that Nvidia’s revenue over the past year pales in comparison to these tech giants.

YCharts data.

However, Nvidia co-founder and longtime CEO Jensen Huang said in the latest earnings report that “a new era of computing has begun.” Could this help Nvidia close the sales gap with other big tech companies, and does that justify the stock moving even higher?

What does this “new era of computing” look like?

Huang explained during Nvidia’s second quarter fiscal 2024 earnings call (for the three months ending in July) that there are actually two major shifts happening in the world of computer technology. They are as follows:

• Calculation acceleration: CPUs (central computing units) are still essential but they are for general computing purposes. Nvidia’s decades-long work on GPUs (graphics processing units), initially intended for high-end video game graphics, is now being applied to the cloud and other high-performance uses different to speed up calculation time many times compared to the CPU’s capabilities. completed alone.
• Innovative AI: This is just one example of the new but promising type of high-performance computing workloads that have attracted attention in 2023. The ability to create an AI algorithm once and then use its capabilities to “creating” content like text, images, video, software code, and even making robotics decisions (like self-driving car technology) over many years has obvious financial appeal.

Huang cites estimates that the world’s total data center infrastructure is currently worth about $1 trillion, and that this infrastructure tends to be refreshed with new hardware (semiconductors, components). and construction materials) about every 3 to 5 years – equivalent to about 200 billion USD. in global spending each year.

But now, thanks to Nvidia’s pioneering efforts to accelerate computing, a major upgrade cycle is underway to refocus these data centers on chips that Nvidia designs to address these problems. new use cases such as synthetic AI and other high-performance computing workloads.

The result for Nvidia is that their revenue increased sharply, especially in the data center segment (including AI).

Image source: Nvidia.

Total revenue in the second quarter was $13.5 billion, and the third quarter is expected to bring in about $16 billion. Management said it has a clear view of demand through 2024 and expects to rapidly increase supply (and therefore final sales) in each quarter through next year.

How big can Nvidia really get?

All of this means Nvidia is on track to surpass $50 billion in annual revenue this year. If good growth continues next year (fiscal 2025 for Nvidia), it could soon become the world’s largest semiconductor business by revenue.

Data source: Nvidia. *Nvidia’s fiscal year ends January 2024

For reference, at its peak a few years ago, Intel holds the title of leading semiconductor sales with annual revenue of nearly 80 billion USD. Today, the company with the largest revenue is Taiwan semiconductor manufacturing.

YCharts data.

Now, does that justify Nvidia’s market cap, which is now among the major tech stocks? Only if it continues to expand rapidly and at very high margins (net income margin was as high as 46% in Q2). Whether it can maintain its current growth rate next year (2024, or Nvidia’s fiscal year 2025) is now in question.

Nvidia stock has increased 174% in just the past 12 months. Don’t expect anything close to that performance when Nvidia is in the $1 trillion valuation club. As impressive (and historic) as the company’s financial results have been to date, the stock’s ability to move much higher may be severely limited over the next year or so.

Historically, Nvidia stock has endured its fair share of downturns, as was the case in 2022. If you feel like you need to get on the Nvidia bandwagon, be a little patient at this point . Meanwhile, there are other chip companies participating in this exciting new era of computing that Nvidia helped pioneer.