- Nvidia beats earnings expectations for sixth time in a row
- A planned stock split will make a single share in Nvidia more affordable to retail investors
- Nvidia’s shares rise in after-hours trading following latest results
“Expectations were high for Nvidia in the run-up to its latest results so to smash forecasts is a major achievement. That makes it six quarters in a row it has beaten the consensus earnings estimate and seven consecutive quarters for revenue. The chip giant is riding a gigantic wave that shows little sign of losing power,” says Dan Coatsworth, investment analyst at AJ Bell.
“Nvidia’s earnings forecasts had already been upgraded six times by analysts since the start of January, according to Stockopedia data, and the latest results means financial models will have to be tweaked upwards again.
“A ten-for-one stock split should appeal to retail investors, making an individual share in Nvidia more affordable to the masses. Issuing more shares will automatically lower the share price and make it appear less expensive.
“Playing around with the share price by making technical adjustments is a psychological trick. The value of the business won’t have actually changed and the value of someone’s investment is completely unaffected. It’s a classic technique that has been adopted by Apple and Tesla, among others, many times over the years.
“There is a clear reason why investors are drawn to Nvidia. AI is the biggest thing to happen to the tech sector in decades and we might only be on the cusp of the revolution.
“The chipmaker is embracing this gigantic opportunity as a broad range of industries adopt AI and seek ways to improve their processing and analytical capabilities. Nvidia’s chips have become the must-have components at the heart of any AI strategy and it is laughing all the way to the bank. At least it is being generous and doling out a lot more cash to shareholders as dividends.
“Every sector imaginable is looking at how AI can make their lives easier, improve output and ultimately help their customer base. For example, generative AI is being used in the healthcare sector in areas such as drug research, medical imaging and wearable devices. Financial services companies are using AI for fraud detection and risk management. Automotive manufacturers have AI at the heart of autonomous driving and simulation programmes.
“Retail, logistics, real estate, media, education, fashion, the list goes on – all these industries are embracing AI and Nvidia’s chips are playing a central role in giving companies more power and knowledge.
“Big companies are investing heavily in AI capabilities including Alphabet, Meta and Microsoft which says a lot about the technology’s importance. AI is the key topic of conversation and you know when these tech giants are investing heavily, it’s a serious commitment and others are sitting up and taking notice. Naturally, that creates a domino effect as more and more companies put AI on their priority list.
“There are two key revenue drivers for Nvidia. First is the evolution of the data centre. Historically, these facilities were somewhere to store data but Nvidia believes they are now AI factories acting as supercomputers which generate valuable information that give companies incredible insight.
“Second is something called ‘inference’ which is the ability to analyse new information. AI models feed on information which enables them to learn to identify certain things; inference takes this to another level and enables a company’s systems to understand, predict and categorise new information and use that to improve decision-making.
“While Nvidia has been riding high, it cannot be complacent. There are growing concerns that competition is heating up, particularly as rivals have seen the type of money it is earning and they want a slice of the pie. Intel, AMD and lesser-known players such as Cerebras and Groq are all ones to watch in terms of names looking to capitalise on the hot AI trend in one way or another.
“Nvidia’s stellar growth has been a key driver for both its share price and its position as the posterchild for the AI movement. Failure to maintain high growth levels, either because it is losing out to competitors or there is a slowdown in demand, could be bad for its share price and markets in general. Its success on the stock market has been a focal point for investors around the world and a derailing of its gravy train would send shock waves beyond the tech sector.
“Amazon’s decision to switch an order to the next generation of Nvidia’s products rather that use last year’s chips is also something to watch closely. Any sign that other companies are following the same line of thinking could cause short-term disruption to Nvidia. It makes sense to go for the latest technology and get the most powerful capabilities possible, particularly as AI’s capabilities are developing so fast.”
