Nvidia Close to Becoming First Trillion-Dollar Chip Firm as AI Boom Drives Stellar Forecast

For Nvidia, the boom in generative artificial intelligence (AI) is everything, everywhere, all at once.

The chip designer's shares extended their rally this year on Thursday, soaring 25 percent after a stellar forecast showed that Wall Street has yet to price in the AI potential of the company that has already doubled in value in 2023.

Nvidia, whose stock hit an all-time high in premarket trading, was set to swell its market valuation by about $189 billion (roughly Rs. 15,63,914 crore) to $945 billion (roughly Rs. 78,19,572 crore).

The rosy earnings also sparked a rally in the chip sector and AI-focused firms, lifting stock markets from Japan to Europe. In the US, companies including Alphabet, Microsoft and AMD rose between 2 percent and 8 percent.

Analysts rushed to raise their price targets on Nvidia stock, with 21 lifting their view on the idea that all roads in AI lead to the company as it provides the chips used to power ChatGPT and many similar services.

"In the 15+ years we have been doing this job, we have never seen a guide like the one Nvidia just put up with the second-quarter outlook that was by all accounts cosmological, and which annihilated expectations," said Stacy Rasgon of Bernstein.

Nvidia, the fifth-most valuable US company, on Wednesday projected quarterly revenue more than 50 percent above Wall Street estimates and said it would have more supply of AI chips in the second half to meet a surge in demand.

CEO Jensen Huang said a $1 trillion (roughly Rs. 82,74,230 crore) worth of current equipment in data centers would have to be replaced with AI chips, as generative AI is applied into every product and service.

The results bode well for Big Tech companies, which have shifted focus to AI in hopes the technology would help attract demand at a time their profit engines of digital advertising and cloud computing are under pressure from a weak economy.

"This Nvidia (forecast) changes the whole narrative around AI and demand looking ahead in the enterprise. Historical inflection point possibly in AI Revolution, with Nvidia the key barometer," said Dan Ives of Wedbush.

© Thomson Reuters 2023