Nvidia is the talk of the town at AI events ahead of Q1 FY2025 results

Early last week, OpenAI’s chief technology officer personally thanked Nvidia CEO Jensen Huang for “bringing us the most advanced chips” needed to run the demo of a presentation the company gave on its latest artificial intelligence models.

A day later, at Google’s annual developer conference, Alphabet CEO Sundar Pichai highlighted his company’s “long-standing partnership with Nvidia” and noted that Google Cloud will use the chipmaker’s Blackwell graphics processing units (GPUs) in early 2025.

And this week, Microsoft, which provides servers to OpenAI, will announce new AI advancements and features developed on the company’s massive Nvidia GPU clusters. The company holds its Build conference in Redmond, Washington.

Ahead of its quarterly earnings report released Wednesday, Nvidia finds itself at the center of the tech action, an increasingly common position for the 31-year-old company, whose market capitalization has surpassed $2 trillion. dollars this year.

Nvidia is expected to report year-over-year revenue growth of more than 200% for a third straight quarter, with analysts forecasting a 243% increase in the first quarter to $24.6 billion, according to LSEG. More than $21 billion is expected to come from Nvidia’s data center business, which includes all the advanced processors the company sells to Google, Microsoft, Meta, AmazonOpenAI and others.

Nvidia is making so much profit from its suite of AI products that net profit is expected to increase fivefold from the previous year, to $13.9 billion.

The stock has soared 91% this year after more than tripling in 2023.

Dan Niles, founder of Niles Investment Management, compared Nvidia’s position in the AI ​​boom to the “development of the Internet” of the 1990s and Cisco central role at that time. Over a three-year period, Niles said, Cisco experienced several dramatic declines, but ultimately rose 4,000% to its peak in 2000. Nvidia will experience similar cycles, he said.

“We’re still very early in building AI,” Niles told CNBC’s “Money Matters” on Monday. “I think revenues will grow three to four times from current levels over the next three to four years, and I think stocks will match that.”

Google, Amazon, Microsoft, Meta and Apple are expected to spend a total of $200 billion in capital spending this year, according to a Bernstein estimate, with much of the spending going toward AI-specific infrastructure like Nvidia chips.

Elsewhere, OpenAI relies on Nvidia technology for its latest chatbot, GPT-4o. Meta announced plans in March to buy and build computers featuring 350,000 Nvidia GPUs, costing billions of dollars, and CEO Mark Zuckerberg even exchanged jackets with Huang and posed for a photo with the Nvidia CEO.

“If you look at the development of AI today, who is really driving this?” » Niles said. “These are the most profitable companies on the planet – it’s Microsoft, it’s Google, it’s Meta, and they’re the ones driving all of this.”

Before the recent AI boom, Nvidia was known as the leading manufacturer of chips used for 3D gaming. About a year ago, the chipmaker gave investors the first hint that the company would experience a period of historic growth, signaling to Wall Street that it would generate about 50% more sales than analysts expected. expected for the July 2023 quarter.

Since then, growth rates have accelerated. But starting in the second quarter, the expansion is expected to slow, with analysts forecasting a significant deceleration in each of the next three periods.

“We simply do not know how long this investment cycle will last or how much excess capacity will be created during this period in case this AI deal does not materialize as quickly as expected,” the authors wrote. Bernstein analysts in a note earlier this month.

That’s not to say that Nvidia risks losing a ton of its AI chip business to competitors. Analysts at Piper Sandler expect it to retain at least 75% of the AI ​​accelerator market, even as companies like Google build their own custom chips.

“We expect the percentage of hyperscaler spending dedicated to compute to increase further in 2024 and 2025,” Piper Sandler analyst Harsh Kumar wrote in a note.

One of the questions facing the company is how well the transition to its next generation of AI chips, called Blackwell, will go, which are expected to ship later this year. Some fear a lull as customers shy away from buying older Hopper GPUs like the H100 in favor of Blackwell-based chips like the GH200.

“To some extent, the pattern has changed,” Joseph Moore, an analyst at Morgan Stanley, wrote in a note Monday. “Six months ago, short-term expectations were very strong, but there was concern about sustainability. Today, after hyperscalers talk about long-term spending expectations for AI, these Long-term visions are more positive, but there is concern about a break in front of Blackwell.