Nvidia's blockbuster quarter might not have been strong enough to impress investors given the company's already sky-high valuation, but the results did make the case the artificial intelligence (AI)-fueled surge in chip spending is not going to recede any time soon.
That forecast is providing momentum for other chipmakers with rival data center offerings, including sending shares of Advanced Micro Devices (AMD -1.18%) up 3.6% as of 2 p.m. ET Wednesday.
The AI bandwagon shows no sign of slowing
Nvidia shares are up more than 230% year to date on the strength of its artificial intelligence offering, and the company's quarterly results, announced Monday night, showed no indication of fading momentum. Revenue surged 206% year over year and earnings per share was up 593%, and Nvidia said it expects to generate $2 billion more in revenue in the current quarter than it did in the just-completed three months.
Investors are so taken with Nvidia that the stock is actually down on the news, but other AI-related companies are getting a boost from the forecast. Among them are AMD, which trails Nvidia in the AI chip market but is making strides thanks to its new MI300 silicon design.
It appears Wall Street is still excited about the AI opportunity, but with Nvidia now valued by the market at more than $1.2 trillion investors appear to be looking elsewhere to capitalize on the opportunity. Even if AMD can't surpass Nvidia, the chipmaker has a solid opportunity to grow assuming Nvidia's forecast for an expanding market is correct.
Is AMD a buy as AI spending surges?
There's good reason to be excited about AMD's MI300 design. The chip is to be used on the Lawrence Livermore National Laboratory's new El Capitan supercomputer, which is expected to be the fastest in the world when it comes online in 2024. AMD expects to generate more than $2 billion in sales from these new data center chips in 2024.
But other sectors of AMD's business, including communications and embedded chips used in industrial applications, are lagging, and gaming sales appear to be under pressure.
Compared to Nvidia AMD shares could be considered reasonably priced, up "only" 90% on the year. But the stock is trading at a rich 46 times what Wall Street expects it to earn per share next year.
As long as AI stocks continue to capture the imagination of Wall Street, AMD can go higher from here. But investors would be wise to learn the lessons from Nvidia's weakness Tuesday and understand that with valuations sky-high market sentiment can be fickle even if the business is doing well.
