(Bloomberg) — Nvidia Corp. gave investors what they’ve been looking for this week: hard evidence that the rise of artificial intelligence is driving higher sales. Almost lost in the euphoria the chipmaker has set in motion, however, it was a warning that not everyone will be joining the party.
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Nvidia chief executive Jensen Huang described what he sees as a shift taking place within the world’s data centers as companies rushing to add AI computing power are shifting spending towards the type of equipment produced. from Nvidia and away from most of Intel Corp. lucrative revenue stream, data center processors.
You’re seeing the beginning of, call it, a 10-year transition to basically recycle or reclaim the world’s data centers and build them as accelerated computing, he said on his earnings call Wednesday. The workload will predominantly be Generative AI.
Although Huang did not mention any names, there was no doubt who was speaking. He said data centers will be transformed from their reliance on central processors, a business dominated by Intel, towards the use of more graphics chips, the domain of Nvidia.
Shares of Intel fell 5.5% on Thursday, dealing another major blow to the company that was the world’s largest chipmaker just two years ago. Nvidia is up 159% this year, putting $1 trillion in market value within reach, while Intel is up less than 5%. An index of chip manufacturers gained 35%.
On Friday, Nvidia fell 0.7% and Intel fell 0.2%.
They missed the boat, which affected the stock’s performance, valuation and growth potential, said Intel’s Zeno Mercer, senior research analyst at ROBO Global. The company should have done a little more to be here. However, it is short-sighted to write off anyone’s growth potential and market share in a market like AI. The company counts Nvidia as its second largest holding.
Investors took a more constructive view from Advanced Micro Devices Inc., which like Intel gets the majority of its sales from central processing units. The stock was up 11% on Thursday, adding to gains that have sent its shares up 87% this year. The collaboration between AMD and some of the largest buyers of this type of technology could put it in a better position to catch up on Nvidia.
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That doesn’t mean it’s a cheap way for investors to join the Nvidia-led rally. AMD is priced at 37 times projected profits over the next 12 months, according to data compiled by Bloomberg. This approaches Nvidia’s levels, which trades at 50x.
Nvidia dominates the market for graphics chips that gamers use to get a more realistic experience on their personal computers, and has adapted that type’s key parallel processing attribute of the chip to increase use in training and running the game. AI software.
Intel has been trying to enter that market for many years with limited success. AMD is the second largest maker of graphics processing units for gamers and has only just begun offering products optimized for data center computing, something that could make it valuable to large customers like Microsoft Corp. who are currently lining up for data center offerings. Nvidia.
While Intel and other chipmakers like Qualcomm Inc. have spoken out about their ambitions in AI computing and the detailed new products they believe will impact the market, investors haven’t listened.
The fact that they haven’t made any moves in this space is really to their detriment, said Adam Sarhan, chief executive officer of 50 Park Investments. By the time they get on the bandwagon, they may be too late, and if they don’t, they may be left behind. Artificial intelligence is taking the world by storm, with applications we might not have expected, and this could impact all areas of the chip space.
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Nvidia’s surge this year has helped fuel a strong rally in the Philadelphia Stock Exchange’s semiconductor index, which closed Thursday at its highest level since April 2022. The index jumped 6.8% following forecasts from Nvidia, its biggest gain since November, taking its 2023 gain to 32%. While Nvidia is the biggest winner among the component indexes, Advanced Micro Devices also outperformed this year, up 88%.
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–With assistance from Rheaa Rao.
(Open Market Updates.)
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