Nvidia (NVDA) shares nudged higher Tuesday, following on from the lowest closing level for the AI-chip maker in more than a month, as investors and analysts continue to tout the profit potential of its market-leading position in the world's hottest tech market.
Nvidia, which has gained nearly $1 trillion in market value this year, cemented its leading position in AI processors last month as it launched its new Blackwell GPU architecture, which performs tasks at more than twice the speed of its current offerings.
Named after the African American mathematician David Harold Blackwell, the new chips are expected to price at a 40% premium to Nvidia's current H100 benchmark, which range from between $30,000 to $40,000 per unit.
Nvidia forecast first-quarter revenue of around $24 billion, with the bulk of sales coming from its data-center division, prior to the launch of the Blackwell B100.
Data-center sales, which house the group's AI-focused chips, were a staggering 410% higher from a year earlier at $18.4 billion over the final three months of last year. The sales jump reflected a surge in demand from cloud-service providers like Microsoft (MSFT) and the broader AI ambitions tied to Magnificent 7 rival Meta Platforms (META) .
AI demand is simply now slowing down
Perhaps even more impressive from an investor perspective was the amount of profit Nvidia was able to extract from its chip-making business. Gross-profit margins widened by more than 12 percentage points to 76%, a figure the group says will improve to 77% over the three months ending in May.
Morgan Stanley analyst Joseph Moore sees the broader market's AI investment theme and Nvidia's leadership position driving near-term growth and offering investors the best name in the sector to gain AI-related exposure.
Related: Analysts revamp Nvidia price targets as Blackwell tightens AI market grip
Moore cited Microsoft's reported $100 billion data-center project, dubbed Stargate, as a key example of the kind of investment plans hyperscalers, or large cloud-computing-service providers, are making in the wake of the new AI wave.
Google parent Alphabet (GOOG) told investors earlier this year that "investment in [capital spending] will be notably larger" this year than last, with reports suggesting as much as $50 billion could be earmarked for AI and cloud initiatives.
Social-media giant Meta Platforms (META) , meanwhile, is planning to have around 350,000 H100 graphics-processing units, the AI-focused chips Nvidia makes, in place by year-end. That would take Meta's total of Nvidia GPUs to around 600,000, a level that would establish it as one of the largest AI systems in the world.
Mag 7 earnings will drive S&P 500 profits
"AI is clearly being adopted and there are a ton of [business-to-business] transactions for [graphics-processing units] we are not seeing with the naked eye, as all these tech companies race to implement and monetize [it. And] Nvidia is at the forefront of all things AI," said Ken Mahoney, president of Mahoney Asset Management in Montvale, N.J.
On the back of that longer-term investment arc, as well as the surge in near-term demand, Morgan Stanley's Moore lifted his Nvidia price target by $205 to $1,000 a share, a level that suggests a near 17% gain from current levels over the next 12 months.
"Faced with limited slots for AI processors, we are seeing some of the appetite for alternatives taking a back seat to the highest ROI processor, which continues to be Nvidia," Moore's team wrote, arguing that supply shortages from competitors are driving market share back to the group.
"Through most of 2023, there were shortages of GPUs, and the tighter allocation environment was a factor driving purchasing behavior," Morgan Stanley said. "Recently, though, the bottleneck is less about graphics processors and cards, and more about the ecosystem - rack space and power."
Related: Veteran analyst delivers blunt warning about Nvidia's stock
Nvidia will be the last of the so-called Magnificent 7 stocks to report first-quarter earnings, with an update expected May 22. The big tech collective is still likely to deliver the bulk of S&P 500 profits again this year.
LPL Financial's chief equity strategist, Jeffrey Buchbinder, says the Magnificent 7 stocks are likely to see earnings grow 40% from a year earlier, "while the rest of the S&P 500 — the 493 — will need to deliver some healthy upside just to match the earnings from the year-ago quarter."
Tesla (TSLA) , which along with Apple (AAPL) is expected to post a year-on-year earnings decline, will be the first of the Mag 7 stocks to update investors, on April 23.
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Early indications suggest Nvidia will post a bottom line of $5.53 per share for the first quarter, a more than fivefold increase from a year earlier, on revenue of $24.42 billion.
Nvidia shares were marked 1.16% higher in early Wednesday trading to change hand at $861.05 each. The stock, which is up 77.2% for the year, closed at a one-month low of $853.54 each on April 9.
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