Nvidia stock has gotten a boost lately from companies ramping up artificial intelligence initiatives using the chipmaker's graphics processors. But will Nvidia see returns from AI in the near term or is it a longer-term business driver?
That question is on investors' minds as Nvidia prepares to report its fiscal fourth-quarter results late Wednesday.
Analysts polled by FactSet predict Nvidia will earn 81 cents a share, down 39% year over year, on revenue of $6.02 billion, down 21%, amid soft sales of PCs and gaming chips.
Investors likely will focus on Nvidia's data center business. That segment sells graphics processors and high-performance computing systems for artificial intelligence applications, such as generative AI tool ChatGPT.
'Mother Of All Cycles' Coming?
"Nvidia has started to capture investor imagination on the first potentially big AI inference application in the chatbot world: ChatGPT," Rosenblatt Securities analyst Hans Mosesmann said in a note to clients Monday. "We believe ChatGPT is just one of a multitude of AI-centric growth vectors going forward, which is fundamental to our two-year thesis of a dynamic that is leading to a Mother-of-All-Cycles that the semi industry has never witnessed."
Mosesmann reiterated his buy rating on Nvidia stock with a price target of 320. Also, Nvidia is likely to meet expectations for its fiscal fourth quarter and with its year-ahead guidance, Mosesmann said.
On the stock market today, Nvidia stock dropped 3.4% to close at 206.55 amid a broad market sell-off.
Some Analysts Cautious On Nvidia Stock
But other analysts are more cautious on Nvidia. Morgan Stanley analyst Joseph Moore on Tuesday maintained his equal weight, or neutral, rating on Nvidia stock.
Spending cuts by hyperscale cloud computing providers remain a chief investor concern heading into Nvidia's earnings report, Moore said in his note to clients. Further, hyperscale cloud service providers include Alphabet's Google, Amazon's Amazon Web Services, Facebook parent Meta Platforms and Microsoft's Azure.
"The biggest question is how the company will be impacted by data center spending cuts," Moore said. "Hyperscale budgets are coming down meaningfully, which could put some downward pressure (on Nvidia's outlook)."
No Signs Of Higher AI Gear Spending Yet
AI applications require a lot of computing power and Nvidia is a top supplier of high-end graphics processing units. But supply chain checks aren't showing an inflection yet for AI capacity buildouts, UBS analyst Timothy Arcuri said in a note to clients on Monday. He rates Nvidia stock as buy with a price target of 270.
"Regardless of near term, we expect a very bullish tone from (Nvidia) management around the impact that generative AI and models like ChatGPT and Bard AI from Google will have on Nvidia's total addressable market," Arcuri said. "This should keep interest in the stock very high even if near-term guidance is a touch soft."
Nvidia's fourth-quarter report stands as "somewhat irrelevant," given the coming opportunity in AI computing, Evercore ISI analyst C.J. Muse said in a note Saturday. Also, Muse rates Nvidia stock as outperform, or buy.
"We are at the tipping point of a huge monetization event with AI — specifically large language models and accelerated adoption of transformer technology, which will drive meaningful training and inference demand for Nvidia products," Muse said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
