In this interview, Marc El-Lazidi, chief investment officer at Jesmond Mizzi Financial Advisors Ltd, discusses the race to AI supremacy and the winners and losers in the semiconductor space.
NVIDIA’s earnings call saw the company shock the market with guidance suggesting near-record revenues in the second quarter of the year. Its stock is up some 169 per cent since the start of the year. How high can it go?
It seems that potentially the sky could be the limit. As you rightly pointed out NVIDIA’s stock soared following its Q1 earnings call, mainly driven by projected revenue from data centre and generative AI in Q2. It seems that NVIDIA is seeing a huge demand for its data centre products on the back of high demand for generative AI across much of the economy.
According to NVIDIA, the worlds data centres are powered by CPU’s worth roughly $1 trillion, and much of these will be shifted over the coming years to a hybrid solution which combines CPU and GPU and memory into a single integrated design, as is the case with AMD’s MI300 chip − the direct competitor of NVIDIA’s H100 GPU.
Projects in other segments also look promising for NVIDIA. Together with Google Cloud, NVIDIA recently delivered the L4 Tensor Core GPU, a powerful new AI and graphics GPU that offers roughly 2.5 times the performance as well as incredible energy efficiency.
NVIDIA also recently announced a new partnership with Service Now, which services corporates with cloud computing solutions.
Another interesting partnership is with Medtronic on the development of an AI platform for medical devices.
We’re also seeing NVIDIA making waves in the automotive segment with its Drive Orin system and its partnership with Chinese company BYD.
And what about its balance sheet and income statement?
The company registered a 19 per cent increase in revenue in the last quarter, despite adverse market conditions and low demand for semiconductors. That said, inventories are quite high – roughly double when compared to last year - and this could yet negatively impact the balance sheet.
Revenue for the second quarter is expected to be roughly $11 billion – their largest ever registered quarterly revenue. Interestingly, most of this growth is expected from the data centre segment. What was clear from the call is that demand for GPUs is set to go through the roof.
Do you see AMD, or perhaps even Intel, managing to claw back some market share in the short-term or will this be the year that NVIDIA consolidates its market position?
NVIDIA has the first-mover advantage, but I wouldn’t dismiss AMD, or Intel for that matter − though Intel does appear to be a bit lost in the transition from CPUs to GPUs. The company is in the middle of a restructuring process, and I can’t really see it challenging NVIDIA in this space. Quarterly PC shipments in Q1 2023 were the lowest in a decade which has seen Intel register its worst-ever earning results.
I would think that AMD stands a better chance of riding the AI wave with NVIDIA. Its earnings results weren’t fantastic, though it did exceed most analyst estimates. AMD’s stock fell roughly six per cent after its earnings but recovered almost immediately. The chipmaker also registered an 11 per cent increase in share price following NVIDIA’s earnings result.
It is clear that while the market has its sights firmly on NVIDIA, it thinks that the demand for GPUs will be so big that AMD also stands to gain quite a bit. Intel, on the other hand, fell seven per cent following the call.
So, it looks like NVIDIA has won the AI war, at least for the time being…
For the time being, perhaps, but we need to remember that what we’re seeing is effectively the creation of an entirely new industry and products we might not yet be even able to imagine.
We’re only at the start of the AI journey and as we all know, nothing lasts forever. NVIDIA will definitely be challenged one way or the other. In NVIDIA CEO Jensen Huang’s own words, the company has competition from many well-funded start-ups, competitors in the semiconductor sector, as well as some of its biggest clients, like Microsoft, Amazon and Google.
We recently had Meta also announce that it would be developing its own AI chips. They’re unlikely to be able to compete with NVIDIA’s chips in every department, but the truth is they won’t need to, because they’ll only be deployed for specific uses. They won’t compete with NVIDIA, especially when it comes to new and emerging uses, but they could result in less revenue flowing to NVIDIA from the big tech players.
This interview does not intend to give investment advice and the contents therein should not be construed as such. Jesmond Mizzi Financial Advisors Ltd is licensed to conduct investment services by the MFSA, under the Investment Services Act. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For more information, contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on tel: 2122 4410, or e-mail info@jesmondmizzi.com