As I predicted in my previous column on Nvidia (NASDAQ:NVDA), artificial intelligence made a huge difference for Nvidia shares. Specifically, the company’s leading AI business enabled it to report strong fourth-quarter results and provide better-than-expected guidance. This sparked an NVDA stock rally in the wake of its earnings report.
Given the continuing spread of AI around the world, the rapid growth of the company’s data center business and the coming proliferation of autonomous vehicles, I expect Nvidia’s shares to continue to rally going forward.
Nvidia Is Benefiting From AI
Fueled by AI, Nvidia’s data center business jumped almost 43% year-over-year and 33% quarter-over-quarter. The company reported that its strong data center results were driven by increased demand from both hyperscale and industry customers.
AI was the key to Nvidia’s growth in both categories, the company indicated.
On the company’s Q4 conference call, CFO Colette Kress reported that its sales to hyperscale companies were “driven” by its AI chips. Meanwhile, a large variety of companies, including retail, healthcare and logistics firms continue to purchase Nvidia’s AI products. Shipments of one of the company’s top AI chips, T4, jumped 400% year-over-year, fueled by demand from cloud firms and companies using it to power video analytics applications.
Nvidia’s chips have enabled Microsoft’s (NASDAQ:MSFT) Bing to generate results up to 800 times faster. Meanwhile, Microsoft earlier this month “announced a new breakthrough in natural language processing” on a machine trained using one of Nvidia’s chip, Kress said.
And Baidu (NASDAQ:BIDU) and Alibaba (NYSE:BABA) have greatly increased the speed at which their search engines offer recommendations. A wide variety of companies like Snap (NYSE:SNAP), American Express (NYSE:AXP) to Domino’s (NYSE:DPZ) are using Nvidia’s AI technologies to make better recommendations for their customers.
Importantly, unlike the cryptocurrency craze that greatly boosted Nvidia’s results for a couple of years and then fizzled out, AI is not a passing fad. Cryptocurrencies were never going to take hold because of the tremendous opposition they face. But, AI is here to stay.
And as I explained in my previous column, Nvidia is the leader in AI chips. Its pending acquisition of Mellanox (NASDAQ:MLNX) should further boost its offerings in that category.
Analysts Are Upbeat on Nvidia
Multiple research firms increased their price targets on NVDA stock in the wake of the company’s results. Cowen increased its price target on the shares to $325 from $240, while Bank of America raised its target to $350 from $300. Bernstein increased its target to $300 from $225.
Analysts were mostly upbeat on the results, MarketWatch reported. RBC Capital called the company’s Q1 guidance “better than seasonal” and was upbeat about the Mellanox deal. Evercore said that the company’s data center business had reached a positive turning point. And Cowen wrote that Nvidia was benefiting from increased investments in the cloud and AI.
Automotive Opportunity Remains Intact
The revenue of Nvidia’s automotive business was flat year-over-year.
Nvidia CEO Jensen Huang appeared to blame the unit’s lackluster performance partly on the auto industry’s macroeconomic issues, saying that “I think that the automotive industry is struggling, but for all of the reasons that everybody knows.” However, he said that every auto company “needs to be a tech company” and “needs to be software defined.” And according to Huang, the auto companies need to implement autonomous capabilities.
These comments have made me even more upbeat on the opportunity for companies in the autonomous vehicle space. I remain convinced that by the end of this year, many companies will be offering services with truly autonomous vehicles.
The Bottom Line on NVDA Stock
As the leading producer of AI chips, Nvidia remains extremely well-positioned to capitalize on the AI trend. Meanwhile, its automotive unit will soon become another strong growth engine for the company. Given these trends, Nvidia can become one of the most valuable companies in tech. Currently trading with a market capitalization of $201 billion, NVDA stock can and will climb tremendously.
As of this writing, Larry Ramer did not own shares of any of the aforementioned companies.
