Chipmaker Nvidia ignites $405.7 billion AI stock rally with bullish sales forecast

Nvidia said it was boosting production of its AI chips to meet surging demand. PHOTO: REUTERS

OAKLAND, California – Stocks related to artificial intelligence (AI) surged in extended trade on Wednesday, adding almost US$300 billion (S$405.7 billion) in market capitalisation after chipmaker Nvidia forecast strong revenue growth and said it was boosting production of its AI chips to meet surging demand.

Nvidia’s stock zoomed as much as 28 per cent after the bell to trade at US$391.50, its highest level ever. That raised its stock market value by about US$200 billion to over US$960 billion, extending the Silicon Valley company’s lead as the world’s most valuable chipmaker and Wall Street’s fifth-most valuable company.

“With all the enthusiasm around AI and the fact Nvidia delivered a huge beat for first-quarter results and second-quarter estimates, this gives some actual evidence AI is for real,” said Mr Daniel Morgan, senior portfolio manager at Synovus Trust in Atlanta. Mr Morgan said that Synovus owns Nvidia shares.

Nvidia forecast quarterly revenue more than 50 per cent above Wall Street estimates, with chief executive Jensen Huang saying in a statement that the company is “significantly increasing our supply to meet surging demand” for its data centre chips.

Shares of other corporations related to AI rallied on the back of Nvidia’s strong report, adding another nearly US$100 billion in stock market value after the bell.

Rival chipmaker Advanced Micro Devices jumped 10 per cent. Microsoft and Google parent Alphabet, which are both rushing to incorporate generative AI into their Web search platforms, each rose about 2 per cent.

AI software maker C3.ai and Palantir Technologies , which recently launched its own AI platform, both soared about 8 per cent.

Nvidia’s outlook shows it is benefiting even more from the AI frenzy than thought possible. The company has positioned itself as the top provider of components for training AI software. That has helped it weather a broader slowdown in technology spending.

“We’re seeing incredible orders to retool the world’s data centres,” Mr Huang told analysts on a conference call. A trillion dollars of data centre infrastructure will be upgraded to handle so-called accelerated computing, he said, letting these centres run generative AI tools such as ChatGPT.

“The budget of a data centre will shift very strongly to accelerated computing,” he said.

Nvidia’s sales in the three months ending in July will be about US$11 billion, it said on Wednesday. That shattered an average analyst estimate of US$7.18 billion.

Revenue growth in its data centre unit was driven by “strong demand from large consumer Internet companies and cloud service providers”. Those customers are deploying its graphics chips to power generative AI and large language models, Nvidia said.

Interest in AI surged in 2023 after start-up OpenAI introduced ChatGPT, attracting more than a million users within a week. Using past data, generative AI can create new content like fully formed text, images and software code.

Ahead of Nvidia’s report on Wednesday, optimism around AI had already fuelled a 109 per cent surge in its stock in 2023, making the chipmaker the S&P 500’s top performer, year to date. That rally left Nvidia trading at about 60 times expected earnings, approaching its peak of 68 times expected earnings in 2021, Refinitiv data shows. REUTERS, BLOOMBERG

Join ST's Telegram channel and get the latest breaking news delivered to you.