The run on artificial intelligence chips
The US chip manufacturer Nvidia cracks the magic one trillion dollar mark on the stock exchange, something no other company from the semiconductor sector has managed before it. The reason for this is the enormous growth prospects in the field of artificial intelligence, which are reflected in the company's share price. But how long can the hype around Nvidia last?
Big Profiteer from the Artificial Intelligence (AI) Trend
The quarterly figures published after hours on Wednesday, May 24, 2023 catapulted Nvidia into the premier league of major US tech companies. The share price jumped around 25 percent at the peak after the company's set of figures exceeded analysts' consensus estimates. The company reported first-quarter 2023 revenue of $7.2 billion (expected $6.5 billion).
The group is soaring on the back of the megatrend around artificial intelligence. Since the beginning of the year, the 2023 stock has already gained around 125 percent. The reason for the run on the company is that the chips it makes are significant for the so-called "large language models" it needs to train an artificial intelligence. If current analyst expectations are anything to go by, the company's revenue could double again in the next three years, provided the trend around AI continues to progress as it has.
With Nvidia's market capitalization of just over 1 billion US dollars, the company is the 5th most valuable company in America and in the best company of the technology giants Apple, Alphabet, Microsoft, and Amazon.
Artificial Intelligence (AI) Megatrend
Indexed price development of S&P 500 and Nvidia over the last 5 years, in USD
But if you take a closer look at the broad American stock index S&P 500 , you will see that it has gained around 10% since the beginning of the year. The five hundred stocks it contains are weighted according to their market value, which could suggest that the rise in the S&P 500 comes purely from the valuation side of the technology giants around the AI trend. In contrast, a look at the S&P 500 Equal Weight does not show such a clear picture and does not really get off the ground. Likewise, the fact that Nvidia, with an annual profit of $4.4 billion last year, ranked just 92nd among the companies in the S&P 500®, suggests a now sporty valuation. But as is so often the case in the financial markets, past performance is not a reliable indicator of future performance.
Conclusion
As a chip manufacturer, Nvidia is not only one of the biggest beneficiaries of the rapid increase in global chip demand, but is also at the epicenter of the latest trend in the technology sector surrounding artificial intelligence. Despite high valuations at Nvidia, the trend around AI is still in its infancy and could therefore be good for one or two surprises in the future. Apart from investments in individual companies, there are opportunities to participate in the developments in the field of artificial intelligence in a diversified manner.
Risks
This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.