Nvidia’s huge earnings and optimistic outlook have been a boon to investors, who have pushed its stock price to a peak this year. But with the U.S. company grabbing the lion’s share of the artificial intelligence spending boom, the outlook for other chipmakers is less positive.
On August 23, Nvidia’s stock price rose more than 6% in a week after the company reported quarterly revenue growth of 101% year-over-year. Its shares have more than tripled since the beginning of the year.
Other chip developers didn’t enjoy such a boost after reporting their own second-quarter results. Among U.S. companies, AMD and Intel’s stock prices fell 7.41% and 4.08% respectively in the past month. As of August 29, the Philadelphia Semiconductor Index (SOX) was down more than 8.4% from a month ago.
- Nvidia takes the lead
Companies around the world are racing to bring about the AI boom with ChatGPT, an AI chatbot developed by OpenAI. This has led to a huge surge in demand for artificial intelligence chips, especially those from Nvidia.
“I can’t find another winner because Nvidia has captured a large portion of the AI spending boom,” said Matt Bryson, senior vice president of equity research at Wedbush Securities.
Nvidia’s revenue hit $13.51 billion in the three months ended July 30, more than double the same period last year and setting a new high for the company in the second quarter.
The sharp increase in sales was mainly driven by its data center business, which includes the H100 and A100 chips, two advanced artificial intelligence chips used to build and run artificial intelligence models and applications. The company expects revenue for the current quarter to be even higher at $16 billion. Other chipmakers also cited strong AI demand in their latest earnings, but few saw revenue growth that high.
AMD, another major player in AI chips, reported an 18% year-over-year revenue decline in the three months ended July 1, while Intel’s revenue fell 15% in the same period.
Asian chipmakers have also yet to gain much from artificial intelligence. Samsung’s chip unit reported a loss of 4.36 trillion won ($3.3 billion) in the April-June quarter this year, while SK Hynix’s revenue fell 47% year-on-year. Both companies are major players in memory chips, an industry that is extremely sensitive to demand cycles.
- More dollars are turning to Nvidia
“Nvidia’s full-stack approach to chips, software, systems, scale, supply and partners will make it difficult for competitors to catch up,” said Vivek Arya, managing director and semiconductor analyst at Bank of America.
Nvidia not only designs chips, it also provides artificial intelligence software and cloud solutions and has a strong channel partner ecosystem with most of the world’s major cloud providers, such as Amazon Web Services, Google Cloud and China’s Alibaba.
“Some competitors, such as Intel and AMD, may see significant cannibalization of traditional computing sales driven by their x86 CPUs,” Arya added. Such central processing units are widely used in servers in data centers and are typically the most expensive of the devices. of chips.
As tech companies spend more money building AI-powered systems, less money may be allocated to traditional data center CPUs, and some investors worry that Nvidia’s AI accelerator could displace AMD or Intel’s server business.
“One of the reasons why commodity and memory chip manufacturers have difficulty prospering is simply because there is huge substitution and hyperscale (spending) in artificial intelligence,” Bryson said. “More dollars are moving to Nvidia.”
In the recently ended quarter, Nvidia’s data center revenue was nearly double the combined data center chip sales of Intel and AMD.
- TSMC is an exception
Taiwan Semiconductor Manufacturing Company (TSMC) is the rare exception where Nvidia has it all. TSMC is the world’s largest contract chip manufacturer. Unlike Nvidia, AMD and Intel, it doesn’t design its own chips but produces its customers’ designs. It is a major manufacturer of Nvidia chips, especially its most advanced products.
Nvidia founder and CEO Jen-Hsun Huang told reporters at Computex in Taipei in June that his company would continue to rely on TSMC for its next generation of chips. The U.S. chipmaker said during an earnings call in August that it was “significantly expanding” production capacity to meet growing demand for artificial intelligence chips, sending TSMC shares higher.
Morgan Stanley estimates that 6% of TSMC’s revenue will come from AI-related semiconductors by 2023 and calls Nvidia’s guidance a “near-term stock price catalyst” for the contract chipmaker.
“TSMC is one of the few companies that, even if Nvidia gets most of the benefits, you would say TSMC has a direct tie to Nvidia,” Bryson said, adding that TSMC is also “the largest supplier of Nvidia chips.” bottleneck”.
Having Nvidia as a customer could help TSMC offset reduced orders from other customers for traditional CPUs and other chips. However, it may take a while for the company to fully capitalize on the Nvidia effect.
“While we have recently observed an increase in demand related to artificial intelligence, this is not sufficient to offset the overall cyclical nature of our business,” TSMC CEO Wei Zhejia said on an earnings call in July, indicating that the semiconductor market is still It is grappling with sluggish demand for PCs and smartphones.
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