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Nvidia Anticipates Continuation of AI's Boom Well into Next Year

CIO Insider Team | Thursday, 24 August, 2023
Separator

Jensen Huang, CEO of Nvidia, anticipated that the artificial intelligence boom would continue well into next year and backed up his prediction with what may be the biggest single wager ever placed in the computer industry.

The company's sales projection for the current quarter on Wednesday significantly exceeded Wall Street's projections, and it announced it will repurchase another $25 billion of its shares—a common practice among businesses whose management believes the company is cheap. But after Wednesday's news, Nvidia's stock price, which has increased by more than quadruple this year, was on track to reach a record high.

The output of its technology will increase into next year, according to Nvidia, dispelling concerns that some experts had expressed about how long the AI mania might persist. Nearly all computing resources used to run popular services like ChatGPT, a popular generative AI chatbot from OpenAI, are controlled by the corporation.

Huang's decision to repurchase shares at a time when the stock is at an all-time high surpasses the wagers that even other major tech companies are making on AI, but it also comes as the company's price-to-earnings ratio dropped from 60 to approximately 43 after analysts raised their earnings projections in May.

The company's HGX system, a full computer built around Nvidia's chip, was cited as the main sales driver this quarter.

Microsoft predicted that the $10.7 billion in capital expenditures it made in its fiscal fourth quarter—of which a sizable amount was spent on Nvidia hardware—would keep rising. Additionally, it has $10 billion invested in OpenAI.

Together, Meta Platforms, Amazon.com's AWS cloud computing division, and other companies have committed tens of billions of dollars on technology and technologies connected to AI.

Nvidia now has the funds for the investment payout thanks to demand for the chips. When compared to most semiconductor companies, which typically have gross margins between 50 percent and 60 percent, the company revealed that its adjusted gross margins virtually doubled to 71.2 percent in its second quarter.

An analyst at Summit Insights Group named Kinngai Chan described Nvidia's inventory as "light" at $4.32 billion.

Certain analysts do not predict an endless supply of demand. Many computer businesses are spending a lot on Nvidia graphics processing units (GPUs) this year, according to Dylan Patel of SemiAnalysis, before figuring out how they would truly profit from products made with those chips.

The company's HGX system, a full computer built around Nvidia's chip, was cited as the main sales driver this quarter. The system is far more intricate than just the chip, and any missing parts might cause shipments to be delayed.

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