Nvidia’s Success Will Carry Some Chip Stocks But Not Intel and AMD

Chipmaker Nvidia (NVDA) saw its shares jump to a new all-time high after delivering blowout first-quarter earnings and forward guidance. The company’s soaring fortunes will also benefit some of its rival chipmakers.

Key Takeaways

  • Nvidia stuns Wall Street with a 50% higher guidance for its second quarter.
  • Key suppliers to the firm will benefit from “surging demand”.
  • The market leaders in CPU technology could suffer at the hands of a GPU shift.

The Santa-Clara, California-based firm reported better-than-expected first-quarter earnings with net income up 26% year-on-year, while revenues outperformed over the same period. But the big story was second-quarter guidance which was 50% higher than analysts were expecting as the company sees a surge in demand for its products.

CEO Jensen Huang attributed the company’s performance to “two simultaneous transitions” in accelerated computing and artificial intelligence.

Chip Stock Winners From Nvidia Results, AI Boom

Nvidia’s success and a push for AI in general will also boost the fortunes of some other chip makers such as Dutch ASML (ASML) and Taiwan Semiconductor Manufacturing Co. (TSM). ASML manufactures machines for Nvidia, while TSM supplies it with GPU technologies.

Nvidia’s forward guidance and Huang’s statement that it was seeing “surging demand” has boosted the outlook for ASML and TSMC, whose shares rose about 5% and 12% respectively as of 11:30 a.m. ET Thursday.

Analysts at Wedbush Securities expect cloud vendors to be “primary beneficiaries” of Nvidia’s increased data center supply. And some of that benefit is already starting to spill over.

Cloud Super Micro Computer (SMCI), an enterprise cloud and AI company, also saw its shares jump over 20% in early trade Thursday. Just three days ago, the company announced a data center solution with Nvidia.

Intel and AMD May Feel The Heat From Nvidia’s Success

However, Nvidia’s current wave will not lift all boats as technology in the industry moves from CPU to GPU processing. Intel (INTC) was the dominant player in CPUs with AMD (AMD) as its main rival. Nvidia is the market leader in GPU technology and its recent growth is driven by the rush to embrace AI technologies.

“The flashpoint was generative AI,” Huang told CNBC. “We know that CPU scaling has slowed, we know that accelerated computing is the path forward, and then the killer app showed up.”

Nvidia also reported a record for its data center revenue and the company said that CPUs will also be left behind in that area.

It may not be all bad news for INTC and AMD.

“Growth in AI demand could yield greater CPU requirements and/or eventually create opportunity for either vendor to gain some future AI silicon share. At the same time, we continue to see heightened AI investment as likely cannibalizing standard data center server demand in the near-term,” Wedbush analysts wrote.

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