What will drive NVIDIA's next surge? The rise of sovereign AI! Expected to generate billions of dollars in revenue this year

It is no exaggeration to say that every financial report of NVIDIA (NVDA.US) can rejuvenate investors' "AI faith", and this time is equally impressive! Besides AI chips, NVIDIA has provided new growth drivers: sovereign AI and new multimodal capabilities. Against the backdrop of the booming demand for AI chips, NVIDIA's ambition to diversify its business through AI sovereignty has given it more confidence in increasing dividends and stock splits.

According to the Smart Finance app, NVIDIA, a chip manufacturer at the center of the artificial intelligence boom, saw its stock rise by about 6% after hours on Thursday, with its market value increasing by nearly $140 billion. This means that the post-market increase alone exceeded the entire market value of Intel, and even more astonishingly, NVIDIA's optimistic forecast for next quarter's $28 billion in revenue is more than double Intel's guidance.

Booming demand for AI chips, new chip platform generating revenue this year, eliminating demand "window period"

Before the earnings announcement, the market was concerned about whether NVIDIA's latest data could prove that its dizzying rise in stock price was justified. As of Wednesday's close, the stock had risen by 92% year-to-date, and investors hoped the company would continue to exceed expectations. The latest report did not disappoint, with CEO Jensen Huang talking about the arrival of a new era, sparking excitement. In an interview, he said, "This is the beginning of a new industrial revolution," echoing one of his favorite themes; "It's really exciting."

The first-quarter performance as of April 28 exceeded expectations, thanks to growth in NVIDIA's data center division. The company said on Wednesday that second-quarter revenue will reach around $28 billion, surpassing analysts' forecast of $26.8 billion. Moreover, optimistic sales forecasts show that the company's spending on artificial intelligence computing remains strong.

This optimistic outlook solidifies NVIDIA's position as the biggest beneficiary of AI spending. The company's so-called AI accelerators - chips that help data centers develop chatbots and other cutting-edge tools - have become hot commodities in the past two years, driving up sales. In the first quarter, NVIDIA's revenue more than doubled to $26 billion. Excluding certain items, profit was $6.12 per share, well above analysts' expected revenue of around $24.7 billion and earnings per share of $5.65.

NVIDIA's data center division - currently its largest source of revenue - generated $22.6 billion in revenue last quarter. The gaming division provided $2.6 billion in revenue. Analysts had expected the data center division to generate $21 billion and the gaming division $2.6 billion Blackwell Platform Achieves Revenue This Year, Eliminating Concerns About "Demand Gap"

The company's new chip platform, named Blackwell, is now in full production. It lays the foundation for generative artificial intelligence that can handle trillions of parameters. Huang Renxun stated, "We are ready for the next wave of growth."

Huang Renxun pointed out that the company will generate "significant" revenue from the new Blackwell chip in 2024, but customers have not reduced orders for existing products - an issue that some analysts are concerned about. He said that these buyers need the current generation to help them quickly build infrastructure.

As Blackwell goes into production, some investors are concerned that NVIDIA may face a sales "gap": some customers may choose to wait for Blackwell and skip purchasing Hopper. Addressing this concern, Huang Renxun emphasized in a conference call that Blackwell can be "backward compatible" with Hopper's architecture system. This means that customers do not need to "wait anxiously" for Blackwell to ship, buying Hopper earlier to enjoy the benefits sooner, and transitioning to Blackwell later will be "smooth."

Demand for NVIDIA products has exceeded supply, and Huang Renxun expects this situation to continue into next year. He mentioned that the company faces other challenges: its technology is becoming increasingly complex, now including complete computer systems, making its supply chain much more complex. This makes increasing output more difficult. He said in an interview, "No one has ever mass-produced supercomputing chips. We are doing our best."

Stock Split and Dividend Increase Propel NVIDIA Stock Price Above $1000, Leading AI Stocks

The company announced a 150% increase in quarterly dividends to 10 cents per share. NVIDIA also announced a 10-for-1 stock split, which helps drive up its stock price. The company stated that this move aims to make it easier for employees and investors to acquire shares. This will be NVIDIA's second split in the past three years, with the company's stock price rising over 500% since the last split announced in May 2021.

In theory, stock splits do not fundamentally impact the value of stocks. However, Alec Young, Chief Investment Strategist at Mapsignals, stated that they often help drive purchases by retail investors. Young said in an interview, "NVIDIA's stock split is big news. You should not underestimate the appeal of stocks favored by retail investors."

NVIDIA also released an earnings report and forecast that exceeded expectations, dispelling concerns that the surge in spending on data center equipment over the past year might slow down. NVIDIA has given traders the green light, with bets on the continued rise of AI computing stocks, not to mention the company's own stock In the after-hours trading of US stocks on Wednesday, the stock rose by 7.8% at one point, breaking through the $1000 mark for the first time. Nvidia's market value has also been soaring, exceeding $2.3 trillion. The rise in Nvidia's stock price has helped boost the stock prices of other AI-related companies. Super Micro Computer Inc. (SMCI.US), AMD (AMD.US), and Dell (DELL.US) all rose after Nvidia's performance announcement.

After the US stock market on Wednesday, Nvidia's performance drove a significant increase in hardware stocks. The biggest gainers were server manufacturers Super Micro Computer and Dell Technologies, both rising by over 4%. Nvidia's chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM.US) rose by over 3%, while chip manufacturers Broadcom (AVGO.US), Marvell Technology (MRVL.US), and AMD rose by over 2%.

Nvidia Diversifies Business in Early Stages, Focusing on Sovereign AI

Nvidia has become Wall Street's most favored bet on artificial intelligence, with sales and net profits in the past few quarters far exceeding analysts' expectations, and the performance outlook provided for consecutive quarters has been stunning. In addition to providing chips to large-scale cloud computing service providers, Nvidia is now also striving for business diversification by targeting the "AI localization" market. This is also the first time Huang Renxun mentioned "sovereign AI" this year, implying a surge in demand for national-level artificial intelligence hardware.

Betting on sovereign artificial intelligence, expected to contribute billions of dollars this year

The release of OpenAI's ChatGPT chatbot in 2022 has sparked a competition among major tech companies to establish their own artificial intelligence infrastructure. This competition has made Nvidia's H100 chip a must-have product. Each chip sells for tens of thousands of dollars and is often in short supply. Nvidia's chips are very suitable for developing AI software, which helps open up a new market and stay ahead of its competitors.

Currently, most of the new revenue comes from a few customers. Amazon (AMZN.US), Meta Platforms (META.US), Microsoft (MSFT.US), and Alphabet's Google (GOOGL.US) are Nvidia's largest buyers, accounting for about 40% of sales. However, Huang Renxun is trying to expand his bet by producing complete computers, software, and services to help more businesses and government agencies deploy their own AI systems.

Nvidia emphasized on Wednesday that it hopes to sell its technology to a broader market beyond the so-called "hyperscalers" - large cloud computing service providers. However, Huang Renxun pointed out that AI is shifting towards consumer internet companies, automakers, biotechnology, and healthcare customers. Countries are also developing their own systems, a trend known as sovereign AI. He said that these opportunities are creating multiple billion-dollar markets beyond cloud service providers. NVIDIA is now seeking new markets and large government-level customers to maintain its rapid growth momentum. For example, the massive deployment of NVIDIA chips by Tesla (TSLA.US), owned by Elon Musk, is a sign of this expansion. The automaker is using NVIDIA's equipment to develop software for autonomous driving cars.

Just last week, it was reported that Tesla has been planning to establish a data center in China to train algorithms needed for fully self-driving cars (FSD) to operate in the region. There are reports that the electric car giant has been in negotiations with NVIDIA (NVDA.US) to acquire its graphics processing units for the Chinese data center. It is known that Tesla has been planning to establish a data center in China to train algorithms needed for FSD. Currently, Tesla is still working to obtain approval from Chinese regulatory authorities. If Tesla can find a way to offer the full version of FSD in China, it could increase its revenue and profit margins in the country.

In the last quarter, mega-scale cloud computing service providers remained a key growth driver for NVIDIA. They accounted for about 45% of the company's data center revenue. This indicates that NVIDIA is in the early stages of business diversification.

After NVIDIA announced its performance, Tim Ghriskey, Senior Portfolio Strategist at Ingalls & Snyder, said, "We are in a technological revolution, and we are still in the early stages. It's really hard not to be optimistic now, especially for NVIDIA."

Huang Renxun proposed "sovereign AI capabilities" in 2024, implying a surge in demand for national-level artificial intelligence hardware

In February of this year, NVIDIA CEO Huang Renxun stated in a media interview that countries around the world are planning to establish and operate their own artificial intelligence infrastructure domestically, which will significantly increase the demand for NVIDIA hardware products. Huang Renxun mentioned in the interview that countries including India, Japan, France, and Canada are discussing the importance of investing in "sovereign artificial intelligence capabilities." "From their natural resources to data, they are seen as something that should be refined and produced for their country. Recognition of sovereign artificial intelligence capabilities is a global concept."

Huang Renxun stated that these countries are now finding a growing demand for supercomputers, which is necessary to leverage their academic achievements. As the co-founder of NVIDIA, the world's first chip giant with a market value exceeding one trillion US dollars, Huang Renxun has been talking since the beginning of this year about the need for large tech companies in various countries to keep their valuable data and intelligence locally. In Huang Renxun's view, this national-level approach to the global layout of artificial intelligence technology trends will drive the expansion pace of data centers, which will require NVIDIA's expertise and the most core acceleration hardware in current data centers - AI chips.

Huang Renxun is now planning to persuade large enterprises and government agencies to establish their own infrastructure, especially expanding NVIDIA's government-level customer base. Huang Renxun said, "The vast majority of computing markets and large data centers are concentrated in the United States. But this is the first time that, with the emergence of AI computing technology, the computational power demand will affect every country." Therefore, some markets will be quite large and global."

Huang Renxun's comments imply that the demand for generative artificial intelligence computing is expanding from cloud computing providers to other industries such as automotive and healthcare, which often require data "localization." These findings provide further evidence to Michael Sansoterra, Chief Investment Officer of Silvant Capital Management, indicating that the momentum of artificial intelligence will continue. He said, "This not only indicates strong spending on data centers in artificial intelligence, but also suggests that people working on the periphery may continue to do well. This is a good sign for the healthy development of the artificial intelligence market, which is still in its early stages."