The AI boom and the demand for AI chips have given a significant boost to chip giant Nvidia (NASDAQ: NVDA). The stock has soared by more than 30% in the past month and has already hit a market cap of $1 trillion. Year-to-date, NVDA has surged by more than 190% while the Nasdaq (NDX) has gone up by only around 38%.
In Q1, NVDA blew past analysts’ estimates, and the company’s Q2 guidance left Street estimates far behind. In the second quarter, the chip giant is expecting revenues of $11 billion, handily shattering consensus estimates of $7.11 billion.
But is this second quarter guidance a one-time spike for Nvidia or will the company sustain this growth over the long term? Recently, Nvidia’s CFO Colette Kress addressed this concern at an investor conference in London. Kress stated that the boom in generative AI is fuelling a surge in demand for AI chips and Nvidia is at the stage where it can meet this demand. The CFO added, “…we do believe generative AI is something that will fuel [demand] for several years for sure.”
Indeed, in Q1, NVDA’s data center business generated record revenues of $4.28 billion, up by 14% year-over-year, and made up around 59.6% of the company’s total revenues of $7.19 billion. The record data center revenues were driven by rising demand for “generative AI and large language models using GPUs based on our NVIDIA Hopper and Ampere architectures,” especially from consumer internet companies and cloud service providers.
Nvidia Perceives a Big Opportunity in Automotive AI
It is interesting to note that while the company’s gaming, visualization, and Original Equipment Manufacturing (OEM) revenues all declined year-over-year in the first quarter, its automotive revenues jumped 114% year-over-year to $296 million in addition to the surge in data center revenues.
Kress touched upon the company’s automotive business at its investor conference last week and pointed out that Nvidia’s automotive software is fuelling Advanced Driver Assistance System (ADAS) and even Level 2 and Level 3 types of autonomous driving. Going forward, the company has an automotive pipeline worth $14 billion, and a large proportion of that “is focused on the software revenue that we will have with these two partners [automotive software agreements with Daimler and JLR] and likely more going forward.”
Wall Street’s Take on NVDA
For top-rated Morgan Stanley analyst Joseph Moore, Nvidia remains a “top pick” in the AI space and is likely “the only company likely beating and raising due to AI in CY23.” The analyst bumped up the price target for the stock to $500 from $450. Moore’s price target implies an upside potential of 17.1% at current levels.
Moore commented, “It seemed clear when NVIDIA reported that we would be in a beat-and raise environment for a while, but that sentiment is continuing to increase.” He added, “NVDA should trade at a premium to peers given the higher probability of upward revisions near term” and is the only “2023 leader.”
Overall, Wall Street analysts are bullish on NVDA stock with a Strong Buy consensus rating based on 32 Buys and four Holds.
Nvidia’s Q1 results and its second-quarter outlook certainly don’t seem to be a flash in the pan. It is obvious that the company is on a growth trajectory over the long term and the stock could see more upside.