• June 3, 2023

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Key takeaways

  • Chip manufacturer Nvidia smashed Q1 earnings expectations and has massively upgraded its Q2 target revenue to $11 billion
  • Stock soared to highs of +26% in a day, breaking the intraday record and sparking an AI stocks surge
  • Not everyone benefited – Intel and Amazon were both down

Microsoft and Google aren’t the biggest winners from the AI wars so far. The real company on top is chip manufacturer Nvidia, who has worked tirelessly over the last decade to develop AI-focused chips that excel at parallel processing and software for some of the companies driving generative AI innovation – and it’s more than paid off so far.

Investors were left stunned at Nvidia’s earnings report, which smashed every expectation and its forecasts for Q2 sent not only its own stock soaring, but a number of other companies were able to bask in Nvidia’s sunshine. Here’s the latest on the Nvidia earnings report and who the biggest winners – and losers – were off the back of it.

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What’s the Nvidia news?

Nvidia is one of the market-leading designers and makers of processing chips needed for video games, AI, cloud computing and data centers. It provides these processing units for some of the biggest companies in the world like Apple, Microsoft, Alibaba and Amazon.

It’s rare to see an earnings report as good as this. Investors have been holding out to see whether Nvidia’s spectacular run this year has been running on hot air, or whether it has the sales to back up its bullish sentiment. On its earnings call on Thursday Nvidia execs confirmed that because of AI demand specifically, the company had absolutely smashed its targets.

Nvidia hit $1.09 earnings per share, eclipsing the 92 cents forecast from analysts. Its revenue topped $7.2 billion, smashing the $6.5 billion target for the quarter. Gaming revenue was down 38% but its data center segment climbed 14% due to AI-driven demand.

The real kicker was its Q2 revenue forecast: it’s predicting $11 billion in revenue for the quarter, leaving the $7.2 billion expectations from analysts in the dust.

In a press release, CEO Jensen Huang said Nvidia was meeting the two new insatiable market needs: generative AI and accelerated computing. Huang said “we are significantly increasing our supply” of its entire family of products to address the demand. There are no signs of slowing down, either. Nvidia’s CFO, Colette Kress, confirmed that Nvidia has “procured substantially higher supply for the second half of the year”.

What was the market reaction?

It’s fair to say Wall Street was utterly delighted at the prospect of Nvidia having already benefited from AI, but also positioning itself for a long-term future in the space. The earnings report sparked a share price rally, with Nvidia stock gaining 26% and breaking an intraday record. Some analysts are raising their targets from $350 to $450.

Since the start of the year Nvidia has added $220 billion to its market share, with the stock surging 165% in 2023 alone. Nvidia is now worth $939.3 billion, pushing it tantalizingly close to the $1 trillion mark – the first time a chip manufacturer would have reached this exclusive club.

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The stocks basking in Nvidia’s sun

The market reaction to Nvidia’s stellar results and forecasts sparked a rally across several AI-focused companies across the global markets: a seriously impressive feat and a testament to just how much hype surrounds artificial intelligence.

The winners

Nvidia’s partners were able to enjoy the upside: TSMC, Nvidia’s semiconductor parts manufacturer which is listed in Taiwan, is up 4.2% while Netherlands-based ASML, which has the machinery to make the semiconductors, rose 6.25%. Monolithic Power Systems, which runs the power systems needed for advanced computing, saw its stock soar a massive 17% in one day.

Some of Nvidia’s peers enjoyed the upside from the ridiculously good report. Advanced Micro Devices, or AMD, which specializes in GPU chips as well, was up 11% at the news. Dell saw a 4.7% uplift and HP surged 3%.

And they weren’t the only ones: AI software companies, who need the chips to run their programs, benefited too. Microsoft, which has a close partnership with Nvidia and is one of the AI software leaders, was lifted 3.85% and Google was up slightly over 2%. A number of smaller AI software companies benefited including Palantir Technologies which enjoyed a 6.5% uplift, C3.ai gained over 6% and BigBear AI saw its stock surge nearly 9% before retreating.

The VanEck Semiconductor Index was up over 5% while the Philadelphia Stock Exchange Semiconductor Index soared as high as 5.1% after the announcement, the biggest gain it’s seen since February.

The losers

For many, it was a blistering day as the global markets saw billions in value added. But not everyone won: Intel, which peaked in the noughties and focuses on producing traditional CPU chips, was down 5.52% on Thursday. Traders are now concerned the chip maker is behind the times as other companies surge ahead.

Amazon also closed 1.5% down, though this may be down to a new statement from cloud computing company Snowflake deleting old data and reducing its reliance on AWS.

It’s rare we can talk at length about the many, many companies that have benefited from one stock’s earnings report, which is a testament to both the strength of Nvidia’s position and the interest around AI technology.

The bottom line

Any doubts that AI wasn’t the next best tech since cloud computing, the mobile phone and the personal computer have now surely been dispelled. Nvidia is set to benefit in the long run thanks to its long-term investment in top-end GPU processors and if the rest of the market wasn’t alive to the potential of AI, it is now.

Investors need to be careful that the hype train doesn’t run too quickly: it’s inevitable that with a gold rush like this, there’ll be companies with too-high valuations and grifters looking to get rich quick with a buzzy new AI company. Nvidia has put its money where its mouth is, but not every company will be able to do the same.

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