AI tailwinds drive Nvidia higher

Nvidia Corp. is now among the top 10 most valuable publicly-traded companies in the world after more than doubling its share price this year.

Nvidia (NDQ:NVDA) is best known for the graphic processor units (GPUs) used in gaming systems, but it is also a leader in the chips used in artificial intelligence (AI) and cloud-based computing. These chips run autonomous robots, self-driving cars, and drones.  

Its shares hit a high in late August after the company reported blowout quarterly earnings and sees continued strong demand for its AI-focused chips. After a slight pullback, the stock is still 212% higher year-to-date, putting the company’s value at US $1.13 trillion.

Here’s an update:

Recent developments: Adjusted revenue in the quarter ended July 30 was $13.51 billion, compared with estimates of about $11 billion. After extraordinary items, the company earned $2.70 per share, compared with estimates of $2.09.Nvidia sees third-quarter revenue of about $16 billion about a third higher than analysts expected.

Jensen Huang, Nvidia’s chief executive, said in a statement the results indicate that a new computing era has begun. Nvidia sees widespread demand for its chips as AI startups and tech giants like Microsoft Corp. add sophisticated computing power to their cloud services. Microsoft, as an example, has incorporated Nvidia’s AI chips in the servers used in its Bing search engine. Chinese demand is strong as companies stockpile chips as a hedge against additional US sanctions that will curb exports.

Nvidia has been the biggest beneficiary of the rise of ChatGPT and other generative artificial intelligence apps, many of which are powered by its chips. It continues to spend heavily on research and development to maintain its lead.

Following release of the results, analysts revised Nvidia’s forward p/e ratio, bringing it down to 33 times forward earnings, from 46 previously. That revision brings expectations more in line with estimates but is still high.

Dividend and buybacks: The stock pays a modest dividend of $0.04 a quarter ($0.16 a year), for a yield of 0.03%. However, the company unveiled a $25 billion stock buyback plan with the quarterly results.

This update appeared in the Internet Wealth Builder on Sept. 4, 2023.  For information on how to reprint this article please view this page.