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Nvidia is up 113% this year (only 5 months), an impressive return for a large company. The stock is part of our 'future hero' holdings, and has been very volatile over the last four years. First it flew due to Bitcoin, and then crashed. Then it flew with the metaverse, and then crashed. Now it is flying due to AI. Out of the three, AI seems the most sustainable.
Due to the more than doubling in share price, in a very short period, many on 'fintwit' have been calling for an impending drop. Their forecast catalyst for the fall was meant to be Nvidia's results presentation. After the market closed last night, the company reported huge growth. Instead of the stock price crumbling, it rocketed up 25%!
The company gave very strong guidance. In the current quarter, it expects record revenue of $11 billion, 50% higher than Wall Street was expecting. Thanks to strong demand, Nvidia is also able to increase profit margins. Higher profit margins coupled with record revenue is good news for shareholders.
The demand for chips from data centres running AI has added much-needed diversity to Nvidia. It used to be the case that Nvidia rose and fell based on demand from the gaming GPU division. New game releases and GPU upgrade cycles drive sales in a very volatile industry. This year, a 38% drop in gaming GPU sales was more than offset by the demand for AI GPU cards.
We really like Nvidia, but it is not for everyone. It is a high-risk, very volatile holding. Expect the share price to continue to bounce around as the company tries to live up to high analyst expectations.
