Nvidia (NVDA 2.54%) stunned the stock market on Wednesday, posting better-than-expected results in its first-quarter earnings report and a spectacular outlook for the second quarter. The stock closed after-market up nearly 25%, adding nearly $200 billion to its market value.
The world’s most valuable semiconductor company actually reported a year-over-year decline in revenue, which was to be expected as it faces a difficult comparison in the gaming sector. But all the attention was focused on the data center sector. The sector reflects a surge in demand for artificial intelligence (AI) chips since the announcement of ChatGPT late last year. Again, Nvidia did not disappoint.
With data center revenues up 14% year-over-year and 18% quarter-on-quarter to a record $4.28 billion, NVIDIA executives expect demand for AI capabilities to accelerate.
“As companies race to apply generative AI to every product, service, and business process, the trillion-dollar global data center infrastructure deployed will shift from general-purpose to accelerated computing,” said CEO Jensen Huang. We will move to winging,” he said.
The chart below shows a breakdown of Nvidia’s results for the quarter.
Even better than the first quarter performance was the company’s guidance.
Nvidia expects second-quarter sales to reach $11 billion, up 64% year-over-year and up 53% over the first quarter, with first-quarter sales up 10% year-on-year. Although it decreased, it became a significant acceleration. On the earnings call, management said the data center sector and demand for AI will drive much of that growth.
Ripple effect
Nvidia’s performance and guidance were impressive enough that other AI stocks also rose on the news.
C3.ai (AI 15.95%)For example, after-hours trading ended 8.2% higher as investors bid higher for enterprise platforms for AI this year, despite the disappointing results.
fellow chip makers Advanced Micro Devices (AMD 5.55%) After hours it rose 8.2%. AMD is seen as benefiting from the boom in demand for AI chips, but its graphics processing units (GPUs) are generally considered to be underpowered by Nvidia’s.
By comparison, AMD’s data center revenue remained flat in the quarter and was only a fraction of Nvidia’s $1.3 billion.
C3.ai and AMD have already reported their most recent quarter results, so the direct impact of Nvidia’s performance on these two stocks looks minimal, but top chip maker Coattail will boost them significantly. is powerful enough to
In fact, all three have been big winners so far this year, with Nvidia and C3.ai up about 150% and AMD up 67%.
Pick and Shovel Approach to AI Gold Rush
Despite the excitement of many investors around artificial intelligence this year, it’s only been six months since the launch of ChatGPT.Including competition between heavyweights such as microsoft and alphabetdot-com bubbles, 3D printers, electric cars, and even cloud computing have led to massive stock market crashes in the past, so investors should be wary of a gold rush.
But NVIDIA offers a way to tap into the AI revolution that other brands can’t. Rather than trying to pick a winner in the AI chatbot wars or betting on companies with no track record like C3.ai, investors are buying his Nvidia stake to keep what’s going on as long as demand continues. You can own stocks that are likely to benefit from AI even if it happens. AI chip prices continue to rise.
It’s a pickaxe and shovel approach, and just as pickaxes and shovels were essential tools for the gold rush, so are Nvidia’s chips for the current AI revolution. Growth in the data center business “reflects strong demand from large consumer internet companies and cloud service providers,” said CFO Colette Kress in a prepared commentary. In other words, the world’s largest tech company is looking to Nvidia to facilitate its transition to AI.
Nvidia’s stock is expensive, but its first-quarter results show that Wall Street still underestimates the company’s potential in the AI boom. The company is a leading chip maker in generative AI, and that position is unlikely to change as the company continues to innovate with new products such as the Hopper GPU architecture.
While the AI hype has fueled other stocks, Nvidia has a dominant market share in high-value AI chips and stands to profit from whichever generative AI product wins.
In my assessment, this is the only AI stock you should own at this time.
Alphabet executive Suzanne Fry is a member of the Motley Fool’s board of directors. Jeremy Bowman has no positions in any of the mentioned stocks. The Motley Fool has positions with and endorses Advanced Micro Devices, Alphabet, Microsoft and Nvidia. The Motley Fool recommends his C3.ai. The Motley Fool has a disclosure policy.
