It's been just three months since the artificial intelligence (AI)-powered ChatGPT debuted. Since then, the viral chatbot has turned plenty of heads. Late last month, Microsoft (MSFT 1.21%) officially confirmed a multiyear, $10 billion investment in ChatGPT and its creator, OpenAI, while also expanding its partnership with the start-up. Microsoft Azure will be the exclusive cloud provider for ChatGPT, and the company recently announced plans to infuse its Bing search engine with ChatGPT technology.
Not to be outdone, Alphabet (GOOGL 0.33%) (GOOG 0.72%) quickly introduced its own conversational chatbot -- Bard. Unfortunately, the chatbot isn't off to a great start. Its launch was marred by several very public faux pas, giving incorrect answers during its demo.
Since then, stories have emerged about both chatbots very confidently giving wrong answers, leaving investors to wonder how to invest in the coming AI revolution.
The answer is hiding in plain sight.
Image source: Getty Images.
AI runs on Nvidia
Nvidia (NVDA +0.64%) announced its fiscal 2023 fourth-quarter results after the market close on Wednesday, shifting the spotlight back to the graphics processing units (GPUs) used to power these AI systems.
The semiconductor pioneer generated revenue of $6.05 billion, down 21% year over year, driven lower by gaming revenue that slumped 46%. In the face of historically high inflation and rising interest rates, gamers decided they can hang on to their existing processors just a little bit longer. Nvidia's data-center revenue -- which includes cloud computing, data center, and AI applications -- fared much better, growing 11%. This resulted in earnings per share (EPS) of $0.88.
For context, analysts' consensus estimates were calling for revenue of $6 billion and EPS of $0.81, so Nvidia surpassed expectations on both counts.
NASDAQ: NVDA
Key Data Points
However, commentary by CEO Jensen Huang made it clear that the quarterly results were a speed bump on the way to explosive growth. "AI is at an inflection point, setting up for broad adoption reaching into every industry," said Huang. "From start-ups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI," a clear nod to ChatGPT, Bard, and others.
Nvidia used its earnings report as a springboard for a set of new offerings that capitalize on the recent fervor surrounding generative AI. The company announced a broad partnership with "leading cloud service providers to offer AI-as-a-service," which will give businesses direct access to Nvidia's "world-leading AI platform." Using their browser, customers will be able to access each level of AI -- including Nvidia's DGX AI supercomputer, software libraries, and even pre-trained models -- all as a cloud service. This is already available on Microsoft Azure, Google Cloud, and Oracle Cloud, with additional announcements to follow.
Nvidia highlighted other upcoming developments, saying,
We are set to help customers take advantage of breakthroughs in generative AI and large language models. Our new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 networking fabric, is in full production.
This illustrates an important point: Regardless of which chatbot wins the battle for AI dominance, the ultimate winner will be Nvidia, as the excitement about AI translates to increased demand for the GPUs that make it all possible.
The tipping point?
Nvidia investors have endured a gut-wrenching roller-coaster ride over the past several years. During the 10 years leading up to November 2021, Nvidia stock soared more than 8,800%, driven higher by the company's dominance in gaming and astute moves into AI, cloud computing, and data centers. In the face of macroeconomic headwinds, however, Nvidia stock fell off a cliff, falling as much as 66% from its peak, fueled by fears about the economic impact of the downturn.
The company seemed to suggest that the worst has passed. For its fiscal 2024 first quarter, management is guiding for revenue of $6.5 billion, a decline of 21% year over year but a 7% improvement sequentially. Helping fuel the recovery is a slow rebound of demand for gaming processors. "Gaming is recovering from the post-pandemic downturn, with gamers enthusiastically embracing the new Ada architecture GPUs with AI neural rendering," Huang said.
It's been clear from the beginning that Nvidia's recovery was only a matter of time. So far this year, the stock has quietly jumped 42%, a figure that will likely go higher in the wake of the company's better-than-expected performance. Given the long runway ahead, Nvidia stock is still a buy.
