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Tech start-ups aspire to achieve the kind of remarkable success that US chipmaker Nvidia has witnessed this year. Nvidia’s chips have powered the AI hype cycle, which continues to thrive. In the current quarter, Nvidia expects revenues to increase by approximately 170% compared to last year. Not only does this surpass its peers, but it also exceeds the average growth rate of start-ups.
Nvidia is reaping the rewards of strategic plans set in motion decades ago. Since its listing in 1999, the company has been at the forefront of graphics processing unit (GPU) technology, beginning with the GeForce 256. These GPUs were later adapted to handle the vast amounts of data required to train large language models for generative AI.
Nvidia’s data centre unit, which encompasses advanced AI chips, witnessed a remarkable growth of 171% to over $10 billion in the last quarter.
However, geopolitical factors have limited the potential market. Last year, the US imposed restrictions on the export of cutting-edge chips to China. Nvidia’s CEO, Jensen Huang, has expressed concerns about further restrictions in a market that accounts for up to a quarter of data centre sales.
Nevertheless, sales of Nvidia’s H100 and A100 chips in other countries are on the rise. Saudi Arabia and the United Arab Emirates are the latest purchasers aiming to develop generative AI capabilities. Nvidia has stated that additional curbs on sales to China would not have an immediate material impact on its financial results.
It is natural to question the threat posed by the determination of Big Tech companies to develop their own AI chips. Alphabet, for instance, is working on a tensor processing unit (TPU) specifically designed for this purpose. With substantial funds at its disposal, Alphabet has the means to pursue this goal. However, Nvidia is actively preparing a more powerful GH200 chip scheduled for release in 2024.
To illustrate the market shortage, consider Nvidia’s efforts to ramp up production speedily. The company plans to triple shipments of H100s next year.
While many tech stocks struggle to match the highs of late 2021, when interest rates were low and sales were soaring, Nvidia has surpassed those levels significantly. Its profits have exceeded expectations, resulting in a lower forward earnings multiple for the company.
Nvidia continues to be the only chipmaker with a market value exceeding $1 trillion. The demand for AI chips surpasses the company’s production capacity, setting the stage for further growth.
Lex is optimistic about Nvidia’s future prospects. How about you? Share your thoughts in the comments section below.
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