Nvidia – Fear of Missing Out
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Companies and nations are investing substantial funds to keep pace in the AI race, focusing on establishing their proprietary artificial intelligence infrastructure. Nvidia is currently reaping the rewards of this trend. They are a semiconductor designer specializing in high-powered chips crucial for training models in accelerated computing and generative AI applications. In addition to these chips, Nvidia provides the essential components that link them, forming supercomputers. This ranges from the switches and wiring to the requisite coding language (CUDA) necessary for running these advanced models on their chips.
Last week, Nvidia unveiled its Q4 2024 results. Their revenue surged by 126% compared to FY2023, reaching $60.1 billion for FY2024. Net profit increased by 581%, soaring to $29.7 billion. Noteworthy is the substantial improvement in the gross profit margin, escalating from 56.9% in FY2023 to an impressive 72.7% in FY2024. Nvidia, as the designer, relies on semiconductor fabrication plants, such as TSMC, for chip manufacturing. This explains the disproportionately higher growth rates in gross and net profit compared to revenue, highlighting Nvidia’s operational leverage.
Companies and countries can’t get enough of Nvidia’s chips, with demand surpassing their current supply capabilities. Nevertheless, there remains a significant concentration among chip buyers. In Q4 2024, 40% of Nvidia’s data centre revenue was attributed to the three primary cloud service providers – Alphabet, Microsoft, and Amazon. These industry giants are still in the early phases of developing accelerated computing and generative AI products. This prompts the following questions:
Nvidia’s stock price has surged by more than 230% in the past year due to their rapid capacity expansion amid growing demand. However, formidable challenges persist. Intense competition looms, with Microsoft, Amazon, and Google striving to develop their own semiconductors for data centres, aiming to reduce dependency on Nvidia. The company faces towering expectations, and even minor deviations from anticipated performance can have a significant impact on their stock price.
Nvidia, Microsoft, and Amazon are held in the Lunar BCI Worldwide Flexible Fund. They are also held by Lunar Capital’s Offshore Portfolio clients.
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The Lunar BCI Worldwide Flexible Fund Fact Sheet can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.
Nvidia – Fear of Missing Out Read More »
Nvidia, the AI chip designer, has had a surge in its share price since the beginning of the year. The company’s share price has increased just over 230% since the beginning of the year. It has been the poster company for investors trying to jump in on the Artificial Intelligence (AI) wave, that has dominated news cycles and conversations over the past year.
Nvidia is renowned for developing the first commercially accessible graphics processing unit (GPU) in 1999. The GPU distinguishes itself from the central processing unit (CPU) by completing less intricate tasks but can do these tasks concurrently. The CPU, on the other hand, can handle more complex tasks but does them sequentially. GPUs have a wide variety of uses such as:
Microsoft, Amazon, and Alphabet, owners of the world’s three largest cloud services providers, have been acquiring Nvidia’s premium GPUs for advancing the next phases of AI application development. These high-end chips come at a substantial cost, with Nvidia’s flagship H100 chip priced at approximately $30,000 each. In Q3 2024, Nvidia gross margin reached 74%: a significant increase from the 56% recorded during Q3 2023. The quarter’s revenues soared to $18 billion, marking a remarkable growth of over 200% compared to the same period last year. Furthermore, Nvidia’s net income reached $9 billion for the quarter, indicating a 1200% increase compared to the same quarter last year.
The substantial costs associated with Nvidia’s high-end GPUs have prompted Microsoft, Amazon, and Alphabet to seek alternatives. Consequently, these tech giants have either already crafted their own chips or are in the process of developing such solutions for use in their data centres. Backed by substantial capital reserves, these companies are investing in chip development endeavours aimed at narrowing the performance gap with Nvidia’s offerings. Nvidia is not stepping back though. The company claims that its upcoming flagship H200, slated for release next year, boasts nearly double the capacity of its predecessor, the H100 GPU.
The competition is further intensifying as traditional semiconductor companies globally vie to capitalize on the AI trend. The race is notably heightened by the US ban on exporting high-performing chips to China, serving as a catalyst for Chinese companies to bolster their presence in the AI chip market. The race is on. As it stands, Nvidia is in the lead but there are many other factors that could favour other winners.
Nvidia, Microsoft, and Amazon are held in the Lunar BCI Worldwide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.
Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.
Our email address is: [email protected]
Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.
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