Nvidia shares soars 25% with earnings driven by AI 📈 Euphoria enters semiconductor sector 🔌

12:12 pm 25 May 2023

The market euphorically received the report itself as well as comments on the development of Nvidia's business (NVDA.US). In fact, every possible comment was made from the company's side that would support the bulls. From higher demand for chips for AI applications, competitive advantages, to a shift to high-margin sales of entire AI supercomputer systems for large companies. The company provided a 50% higher forecast for Q2 earnings and indicated that it is increasing production capacity to meet 'charging demand' for growth-related semiconductors. The stock is gaining nearly 25% ahead of Wall Street's open, and if positive sentiment is maintained, the company's capitalization will approach nearly $1 trillion. 

Revenues: $7.19 billion vs. $6.52 billion forecast (Refinitv) (19% y/y decline)

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Earnings per share (EPS): $1.09 vs. $0.92 forecasts (FactSet)

Net income: $2.04 billion vs. $1.62 billion Q1 2022 (20% y/y decrease, 24% q/q increase)

Data Center revenue: $4.28 billion vs. $3.89 billion forecast (FactSet) (14% increase y/y, 18% increase q/q)

Gaming revenue: $2.24 billion vs. $1.97 billion forecast (FactSet) (38% decrease y/y, 22% increase q/q)

Professional Visualization revenues: $295 million (down 53% y/y, up 31% q/q)

Automotive revenue: $296 million (114% increase y/y, 1% increase q/q)

Q2 2023 revenue forecast: $11 billion vs. $7.15 billion forecast (Refinitiv)

  • The market ignored the double-digit year-over-year decline in revenue and net income, noting mainly the positive outlook, higher q/q rate and higher-than-expected performance in key business segments. CEO, Jensen Huang stressed that companies are beginning to race among themselves to apply generative AI to every possible product, business process and service;
  • The company has launched four platforms that combine the company's inference software with Nvidia's latest Ada, Hopper and Grace Hopper processors. It also announced the debut of GeForce RTX 4060 GPUs, using Nvidia's advanced Ada Lovelace and DLSS technology. Nvidia also announced a significant increase in the number of projects targeting the automotive sector.
  • Along with Nvidia, other companies related to the AI trend and semiconductors, including AMD (AMD.US), Intel (INTC.US), Arista Networks (ANET.US) and Micron (MU.US), also recorded a rally before the Wall Street opening.

Reuters GraphicsNvidia's results by business segment. It can be seen that the share of revenue from the Data Center side has increased significantly over the past few years. They now account for the majority of revenues while just 2 years ago gaming revenues dominated. Until recently, the demand for cloud computing services and now also the technological revolution related to AI are supporting the company's performance, related to chips for data centers. The market sees the company as the main AI 'beneficiary' among semiconductor manufacturers. Source: Reuters, Nvidia

With increasing global demand, artificial intelligence mania may support the company's performance for the rest of the year. CEO Huang called the current situation a 'computer transformation', which means an increase in AI computing and generative power. He relayed that the company began producing AI chips as early as August 2022 which allowed it to satisfy the growing market demand faster than its competitors.

Demand was extremely brisk in January, and the company was forced to place additional orders for the second half of this year. The market welcomed the news, getting confirmation that the rally in the stock has significant justification. In a recent interview, Elon Musk indicated that graphics processing units (GPUs) are extremely hard to come by. With large capacities and demand outstripping market supply, Nvidia has a number of sales advantages with which to increase margins.Reuters Graphics

Nvidia joined the top 5 largest U.S. companies by market cap. Premarket quotations indicates that its capitalization will increase by more than $200 billion. Source: Reuters, Refinitiv

Nvidia shares (NVDA.US), D1 interval. The fall of 2022 has proved decisive in terms of market reaction around the growing popularity of ChatGPT, and market expectations around the company's business growth have increased. If Nvidia opens today near $380, it will mean nearly 400% growth in just 7 months. Looking at the chart, the SMA100 and SMA200 averages formed a 'golden cross' formation, which indicated a dominant bullish trend. Source: xStation5

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