Investors pin hopes on Nvidia emerging as winner in AI revolution

(Alliance News) - Investors were willing to overlook Nvidia Corp's soft annual results, as the chipmaker expanded its offering within artificial intelligence.

Shares in Nvidia were up 8.3% to USD224.70 in pre-market trade in New York on Thursday.

At face value, there was little to drive the jump in shares, with both revenue and profit seeing a marked decline, albeit edging ahead of consensus.

The Santa Clara, California-based computer hardware manufacturing company said in its fourth quarter - ending January 29 - revenue dropped 21% year-on-year to USD6.05 billion from USD7.64 billion. However, it was up 2.2% from the third quarter.

It was also ahead of the market consensus of USD6.02 billion, as compiled by Bloomberg.

Net profit dropped 53% to USD1.41 billion from USD3.00 billion, as diluted earnings per share fell to just 57 cents from USD1.18. Earnings were slightly more than double that of the third quarter.

Adjusted diluted EPS was 88 cents, dropping by a third from USD1.32. However, this was ahead of Bloomberg-compiled consensus of 81 cents.

Despite the fairly bruising year for the hardware firm, investors seemed excited by its announcement it would delve further into the artificial intelligence sector.

Founder & CEO Jensen Huang said AI is at an "inflection point" preparing for adoption across all industries.

"From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI," he said.

Generative AI refers to AI that can generate novel content, as opposed to simple analysis or executing based on existing data.

To capitalise on the buzz around AI, Nvidia is producing its new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 networking fabric. This will "help customer take advantage" of developments in generative AI and large language models.

The company also announced a partnership with unnamed leading cloud service providers to offer "AI-as-a-service".

"Nvidia has whetted investors' appetite with a new business model of selling AI services directly to governments and companies," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"It's now offering its services like access to supercomputers, via big cloud platforms like Microsoft Azure, Google GCP and Oracle Cloud Infrastructure," she added.

Streeter said investors were hopeful this would "cement the company's position as one of the winners of the generative AI revolution".

Interest has exploded in generative AI since the launch of ChatGPT, a free writing tool, that has captured public imagination, and highlighted the advances in the field. Founded by OpenAI, the chatbot has courted investment from the likes of Microsoft, and Elon Musk.

"The chatbot has certainly taken the world by storm in a very short period of time," said AJ Bell investment director Russ Mould.

"Nvidia stands to benefit as its chips are used to develop machine learning software," Mould explained.

According to TechRadar, the high-profile chatbot relies on the A100 tensor core graphical processing unit, made by Nvidia.

While Nvidia's gaming revenue dropped 27% over the year, data centre revenue - which includes AI chips - rose 41%.

"Nvidia is showing that it's far from a one-trick pony chip manufacturer and instead right at the cutting edge of pioneering industries," Streeter added.

By Elizabeth Winter, Alliance News senior markets reporter

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