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Chipmaker Nvidia steps into the spotlight as a barometer of the AI economy

Meghan McCarty Carino Aug 21, 2023
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The valuation of Nvidia, whose products are crucial to artificial intelligence technology, has surpassed $1 trillion. Justin Sullivan/Getty Images

Chipmaker Nvidia steps into the spotlight as a barometer of the AI economy

Meghan McCarty Carino Aug 21, 2023
Heard on:
The valuation of Nvidia, whose products are crucial to artificial intelligence technology, has surpassed $1 trillion. Justin Sullivan/Getty Images
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On Wall Street this week, there are basically just six letters that matter: N-V-I-D-I-A. Nvidia is the chipmaker that’s powering a lot of the AI boom.

The company’s advanced graphics-processing units, or GPUs, have become essential for training generative artificial intelligence models — the ones underlying ChatGPT, Stable Diffusion and a slew of other tools. When Nvidia reports its quarterly earnings Wednesday, investors will be reading the tea leaves not just for the company, but the entire industry that runs on its hardware.

In May, when Nvidia dropped its last earnings report, investors went kinda bananas, per analyst Daniel Newman, CEO of Futurum Group. The company’s business forecast “absolutely set the market ablaze,” he said.

It predicted growth that was beyond the stock market’s wildest expectations, and investors read it as a sign that chatbots were more than a fun party trick.

This year, Nvidia shares have soared more than 200%, sending the company’s total valuation well over $1 trillion. This week, Newman said we’ll get the chance to see whether that momentum sticks.

“Meaning this isn’t a blurp,” Newman said. “This isn’t just a temporary moment, this is game on — that AI is going to be supercharging the next wave of technological growth.”

And the tech sector could use some supercharging. Rising interest rates and questions about how long they’ll stay high have made markets kinda meh lately.

But that could turn around if the AI gold rush was able to sustain itself and broaden out from leaders like Nvidia and Microsoft to the larger tech industry, said analyst Matt Bryson at Wedbush Securities.

“If you remember, back in the mid-’90s when the internet came about, it was that kind of increase in productivity that created the economic boom of the mid-to-late-’90s,” he said.

Oh yeah, but remember what came next?

“People would be smart to be wary of bubbles,” said business professor Erik Gordon at the University of Michigan. “It turned out that the internet did change everything, but it didn’t change everything as quickly as we thought.”

Still, signs of a bubble aren’t likely to show up in Nvidia’s share price any time soon, noted Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology.”

“There’s no doubt the demand for Nvidia’s chips is extraordinarily high,” he said. “The big question is what supply looks like.”

Nvidia’s GPUs are made by just one manufacturer — TSMC in Taiwan — which can’t ship them fast enough. And that means customers are having to wait and pay higher prices.

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