chip maker Nvidia (NVDA) drew attention to artificial intelligence this week with a lifted outlook that has Wall Street analysts on edge. For investors focused on AI stocks, NVDA’s stock valuation is coming to the fore for fear of an AI bubble.
In other developments, Google-parent Alphabet (GOOGL) said it was in talks with European regulators on a voluntary pact to create AI safeguards. Additionally, during the Google Marketing Live event, the internet search giant unveiled more of its advertising strategy amid the rise of Open AI’s ChatGPT.
Meanwhile, the cybersecurity company Palo Alto Networks (PANW) reported fiscal third-quarter earnings that beat estimates. Management discussed their perspective on how generative AI will change cybersecurity. Here is a link to the transcript of the PANW earnings call.
Since AI models require big data to train software algorithms, Palo Alto can be well positioned with its cloud platform.
How Long Will Nvidia Dominate AI Chips?
But it was Nvidia that stood out among AI stocks with its elevated outlook. Nvidia is forecasting revenue of $11 billion for the July quarter, nearly $4 billion above analysts’ estimates, driven by strong demand for generative AI in its data center business.
There is more. Microsoft, the biggest investor in OpenAI, is developing closer ties with Nvidia. Additionally, the two companies are building a new AI supercomputer.
NVDA stock analysts said Amazon Web Services, the cloud computing arm of Amazon.co.uk (AMZN), seems to be a customer of the new Nvidia AI chips. AWS has been a big buyer of Intel (INTC).
Nvidia’s lofty outlook has raised questions about what Intel and Advanced micro-systems (AMD) can do to capitalize on the boom in demand for AI chips in data centers.
Who could challenge Nvidia among AI stocks?
In the long term, Nvidia could face tougher competition. Chip buyers almost always want a second source of semiconductors. They don’t want to be dependent on one chipmaker and give that company price leverage. Additionally, customers want diversity in the event of supply chain issues. For example, Microsoft also recently signed an AI development agreement with AMD.
Meanwhile, cloud computing giants as well as Facebook-parent Metaplatforms (META) are all developing custom AI chips in-house for hyperscale data centers. In April, Google announced a new AI supercomputer using custom silicon that it claimed was faster than Nvidia systems.
At Goldman Sachs, analyst Toshiya Hari says Nvidia is king of the AI chip hill for now. It will take time for AI startups to grow.
“While we recognize the emergence of competition from large CSPs (cloud service providers) as well as other compute semiconductor vendors, we envision Nvidia maintaining its status as the industry standard for the foreseeable future. given its competitive moat and the urgency with which customers are developing/deploying increasingly complex AI models,” he said in a note to customers.
AI stocks: battle for cybersecurity
Elsewhere, software publisher C3.ai (AI) publishes its results on May 31. With stocks up 152% in 2023, this is part of the AI stock buzz.
Analysts expect the artificial intelligence software maker to post a loss of 12 cents per share compared to a loss of 22 cents a year earlier. Revenue will fall nearly 2% to $71 million, analysts said.
What is also clear is that a big battle is looming on the horizon between hackers and cybersecurity companies.
Cybersecurity firm CrowdStrike Holdings (CRWD) publishes its results on May 31. It is also among the AI stocks to watch.
In other AI news, startup Anthropic announced on May 23 that it had raised $450 million in a funding round led by Spark Capital. Google, Selling power (CRM), Sound Ventures and Focus on video communications (ZM) participated in the financing.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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