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Nvidia’s Blowout Forecast Sparks Huge Rally in All Things AI

Nvidia’s Blowout Forecast Sparks Huge Rally in All Things AI
Nvidia headquarters in Santa Clara, California, U.S., on Tuesday, 23 February 2021. (Photo: David Paul Morris/Bloomberg)

Nvidia Corp.’s forecast for surging revenue surprised even the most bullish analysts on Wall Street, propelling the chipmaker to the cusp of a $1 trillion market capitalization and igniting a global jump in stocks linked to artificial intelligence.

The Santa Clara, California-based company gained as much as 26%, hitting an intraday record, after saying it expects about $11 billion of sales in the three months ending July. Analysts had estimated that figure was going to be roughly $7.2 billion.

Susquehanna Financial Group wrote that Nvidia’s report could represent the “greatest beat of all time” as “generative AI and accelerated computing inflect.”

“It looks like the new gold rush is upon us, and Nvidia is selling all the picks and shovels,” wrote analyst Christopher Rolland, who added that “this massive beat will have both bulls and bears questioning the limits of valuation and multiples.”

Nvidia, the biggest maker of the advanced chips required to train a new generation of AI services, added to expectations for a burgeoning technology. Rival chipmaker Advanced Micro Devices Inc. jumped 11%, while suppliers from Taiwan Semiconductor Manufacturing Co. to Advantest Corp. also climbed. Along with memory chipmaker SK Hynix Inc. and Europe’s ASML Holding NV, ASM International NV, BE Semiconductor Industries NV, VAT Group AG and Soitec, they collectively added $215 billion of value in a market otherwise preoccupied with concerns about the US debt limit and China’s economic slowdown.

Meanwhile, the Philadelphia Stock Exchange Semiconductor Index jumped as much as 5.1%, its biggest one-day advance since February.

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The move was not limited to chipmakers, as AI-related software stocks also surged. Among notable movers, C3.ai Inc. gained 6.4%, BigBear.ai Holdings Inc. advanced 8.9%, Guardforce AI Co Ltd surged 11%, and SoundHound AI Inc. added 8.3%. In addition, Super Micro Computer Inc. jumped 20%, and Palantir Technologies Inc. rose 6.5%.

“AI is going to fuel growth in tech at a time when people were starting to wonder about the potential for this extraordinary growth that tech companies have had in the past 10 years to continue going forward,” said Raphael Thuin, head of capital markets at Tikehau Capital.

Investors this year have doubled down on wagers that the viral success of OpenAI’s ChatGPT and other bots will usher in a new era of spending on the technology that underpins AI. Nvidia’s chips excel at parallel processing, making them well suited for training software by bombarding it with data.

Read more on AI and chipmakers:
Nvidia Eyes the $1 Trillion Club as AI Outlook Sparks Rally
Nvidia’s Surge Sharpens Focus on Hunt for AI Losers: Tech Watch
ASML, Europe’s Most Valuable Tech Firm, Defines Global Chip War

The market exuberance drove home growing anticipation around the advent of next-generation AI, which executives around the world have variously likened to the emergence of the internet and the iPhone. ChatGPT’s viral debut in November touched off a global race to develop similar services that can generate content — everything from poems to algorithms and pictures — with a few user prompts.

While the jury is out on which AI service will eventually end up on top, many investors are betting that a splurge on research will drive the companies that provide components essential to AI development and hosting.

TSMC, which manufactures Nvidia’s chips, rose 9.4% in US trading. Equipment supplier Advantest surged as much as 20% to an all-time high in Tokyo, while Hynix advanced up to 6.8% in Seoul.

In Europe, semiconductor equipment maker ASML jumped 5%, and BE Semiconductor Industries nearly 8%.

Nvidia Suppliers Surge in Asia on Strong Outlook

Under Chief Executive Officer and co-founder Jensen Huang, Nvidia has positioned itself as the top provider of components for training AI software. That’s helped it weather a broader slowdown in technology spending.

Investors were looking to the company for evidence that the surge in interest in AI this year is resulting in higher sales of chips that provide the computing power. The semiconductor maker delivered that with a revenue forecast for the current quarter that dwarfed the average analyst estimate.

“The transformational surge in AI spending is paying off much earlier than expected,” Morgan Stanley analyst Joseph Moore wrote in a note. “We simply have no historical precedent for the magnitude of this step function.”

Nvidia’s Huang argued that the use of the technology is only in its infancy and more tailored products for specific industries are needed. He’s built online services and software tools to help encourage the broader adoption of AI outside of his big customers — cloud providers like Microsoft Corp. and Amazon.com Inc.’s AWS.

Orders for Nvidia’s A100 and H100 AI chips are “truly spectacular,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors Ltd. in Singapore. “More importantly for Asian equity investors, they point out that all the orders are being passed on to TSMC,” which has “more than adequate” capacity to fill the orders.

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