Premarket action on Thursday had the three major U.S. indexes trading mixed. The Dow Jones industrials were down 0.29%, while the S&P 500 was up 0.56% and the Nasdaq 1.82% higher.
Semiconductor maker Nvidia Corp. (NASDAQ: NVDA) beat consensus estimates for earnings per share (EPS) by 18.5% and revenue by 9.0%. Year over year, revenue was 13.2% lower, and EPS was 20.0% lower. Not too impressive, but still good enough for a beat on both the top and bottom lines.
Then there is the forecast for second-quarter revenue. The consensus calls for sales to reach $7.11 billion, down about 1.1% sequentially. In its forecast, Nvidia sees revenue of around $11 billion, more than 50% above the analysts’ consensus.
On the conference call, CEO Jensen Huang said generative AI is the “killer app” for data centers that have already soaked up $1 trillion in investment. Those data centers, owned by the likes of Amazon, Google and Microsoft, are populated almost entirely with general-purpose CPUs from chipmakers like Intel and AMD.
These data centers move a lot of data quickly, Huang said, but not as quickly as they could:
In the future, it’s fairly clear now with this — with generative AI becoming the primary workload of most of the world’s data centers generating information, it is very clear now that — and the fact that accelerated computing is so energy-efficient, that the budget of a data center will shift very dramatically toward accelerated computing, and you’re seeing that now. …
I think you’re starting — you’re seeing the beginning of, call it, a 10-year transition to basically recycle or reclaim the world’s data centers and build it out as accelerated computing. You’ll have a pretty dramatic shift in the spend of a data center from traditional computing and to accelerate computing with SmartNICs (network interface controllers], smart switches, of course, GPUs and the workload is going to be predominantly generative AI.
Now, Huang may just be talking his book, but look at those forecast numbers again. A revenue jump of more than 50% above the consensus estimate? Even oil companies will not go that far out on a limb.
Nvidia is not blowing smoke here; this is way past marketing hype. The company has stated clearly that generative AI is a trillion-dollar business over the next several years and that Nvidia expects to claim a big chunk of that business because it is currently the only company that offers a full-stack acceleration. What Huang does not need to say is that Nvidia’s lead here is something like Tesla’s lead in electric vehicles. Other companies will catch up, eventually, but the leader will win and continue to increase its lead as everyone else tries to catch up.
BofA Securities last raised its price target on Nvidia to $340 in mid-April. After the earnings report, BofA raised its target to $450. Other brokerages will be weighing in soon, and the story is likely to be the same.
The other side of the coin is BofA’s AI risk index, a list of 27 companies that are vulnerable to generative AI applications. The poster child for this list would have to be Chegg Inc. (NYSE: CHGG). The company made the mistake of being honest about the impact of generative AI on its business, and the share price took a 50% haircut.
In a report Thursday morning, Bloomberg noted that BofA’s AI risk index includes companies like GitLab Inc. (NASDAQ: GTLB) and Upwork Inc. (NASDAQ: UPWK). BofA’s list even includes Alphabet Inc. (NASDAQ: GOOGL).
Nvidia stock was trading up by about 28% in Thursday’s premarket. If that holds into the regular trading session, the company’s market cap would rise to right around $950 billion, an increase of about $200 billion since the market closed Wednesday.
Here is a look at how the markets fared on Wednesday.
Ten of 11 market sectors closed lower on Wednesday. Real estate (−2.21%) and financials (−1.31%) had the day’s biggest losses. Energy (0.52%) posted the day’s only gain. The Dow closed down 0.77%, the S&P 500 down 0.73% and the Nasdaq down 0.61% on Tuesday.
Two-year Treasuries added five basis points to end Wednesday at 4.31%, and 10-year notes rose by three basis points to close at 3.73%. In Thursday’s premarket, two-year notes were trading at around 4.43% and 10-year notes at about 3.76%.
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