Nvidia's (NVDA +0.19%) shareholders have enjoyed a breathtaking rally in 2023. The chipmaker's stock price is up a stunning 205% so far this year.
NASDAQ: NVDA
Key Data Points
Investors have rightfully crowned Nvidia the biggest winner of the AI revolution to date. But the bears would have you believe that Nvidia's rally is nearing its end -- and that its share price has come too far, too fast.
Their mistake is your opportunity. Here's why the technology juggernaut is poised to deliver even more artificial intelligence-fueled gains to its shareowners in the years ahead.
1. Demand for AI chips is exploding
Companies are racing to develop their AI strategies. The excitement surrounding OpenAI's widely popular ChatGPT is driving businesses to see how they can integrate generative AI into their operations. To do so, they need access to the cutting-edge chips that power AI computing -- and there aren't enough of them to go around.
Wait times for Nvidia's highly regarded AI processors have reportedly stretched to eight months, according to Bloomberg. The semiconductor titan has found it challenging to satisfy the torrid demand for its chips, largely due to industrywide supply chain shortages.
Moreover, recent comments from executives at Microsoft and Alphabet indicate that the major cloud-computing providers plan to ramp up their chip purchases. To meet "demand for our AI platform, we will accelerate investment in our cloud infrastructure," Microsoft Chief Financial Officer (CFO) Amy Hood said during the company's earnings call on July 25. That same day, Alphabet CFO Ruth Porat told investors to expect "elevated levels of investment" in the search goliath's tech infrastructure in the second half of 2023 and into 2024.
These comments suggest that investors' projections for Nvidia's sales may prove conservative, so much so, that analysts at Bernstein believe orders from just four companies -- Microsoft, Alphabet, Meta Platforms, and TikTok owner ByteDance -- could account for nearly all of Nvidia's forecasted AI chip sales in the current quarter.
Nvidia is ramping up its chip production to meet the explosive demand for AI solutions. With this supply set to come online in the coming year, KeyCorp analyst John Vinh estimates that Nvidia could grow its data-center revenue by more than fourfold to as much as $90 billion in 2024. In turn, Vinh sees the chip giant's share price rising nearly 25% to $550.
2. A new chip design should fortify Nvidia's AI dominance
Despite mounting competition from Advanced Micro Devices and Intel, Nvidia still controls roughly 75% of the market for advanced AI semiconductors, according to Bank of America. Never satisfied with the status quo, Nvidia is gearing up for the launch of its new "superchips," which it says will extend its technological lead over its rivals.
Nvidia introduced its next-generation GH200 Grace Hopper Superchip platform on Aug. 8. The design combines high-performance central processing units (CPUs) and graphics processing units (GPUs). It also contains 282 gigabytes of the most advanced high-bandwidth memory technology, known as HBM3e, which is 50% faster than currently available memory tech.
The platform is designed to handle the "most complex generative AI workloads," according to the company, including the biggest large language models and generative AI applications like ChatGPT. Nvidia says the performance upgrades should also help to slash the costs of operating AI infrastructure, thereby making the technology more accessible to a wider array of customers. Nvidia expects to begin shipping the GH200 Grace Hopper Superchip platform in the second quarter of 2024.
Mizuho analyst Vijay Rakesh expects the new design to help ensure Nvidia's continued dominance in artificial intelligence. In turn, he sees the semiconductor leader generating as much as $300 billion in AI-related revenue by 2027.
