Now that every tech firm and its dog has jumped on the artificial intelligence (AI) bandwagon, there appears to be one of two outcomes ahead for the industry.
Those old enough can draw alarmingly similar parallels between what’s happening now and the turn-of-the-millenium dot-com boom.
With firms ‘incorporating large-language models into our workplace procedures’ or simply tacking .ai to their domain names, the spectre of strapping valuations built on shaky foundations looms large.
On the one hand, all this AI hype could swiftly pop like a balloon, leaving a trail of broken AI and AI-adjacent startups in its wake.
On the other hand, AI could genuinely prove itself as the revolution its proponents claim it to be, more akin to the rise of the internet in the mid-90s; a revolution that will change the face of humanity as we know it.
Sitting firmly in the middle of these existential crossroads is Nvidia Corporation, the California tech giant that has become the number-one AI play among blue-chip investors.
On the back of becoming the main supplier of microchip technology to the AI sector, Nvidia’s valuation has absolutely taken off in 2023, making the gaming industry veteran the latest multinational to join the one-trillion-dollar club.
But this extraordinary achievement could also be Nvidia’s biggest weakness in the buildup to second-quarter earnings results this Thursday.
“The frothier valuation does increase the chance of disproportionate reactions should there be any disappointment from (this) week’s results,” noted Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV),
For Lund-Yates, second-quarter revenues of US$11 billion “is the benchmark to watch”.
“Guidance for demand in the new quarter will also move the dial, especially any commentary around the effect of supply constraints,” she added.
Lund-Yates also warned against placing too much stock in the AI basket. “The final piece of the puzzle won’t be linked to AI, but gaming. This industry is what Nvidia was built on, and investors want to see if there’s been any let up in the challenging consumer environment.”
Analysts at Wedbush also have a keen eye on guidance, stating: “The Street is laser-focused on Nvidia's guidance and [CEO] Jensen's commentary to get more direction on the true demand and growth trajectory of the AI revolution into year-end and 2024.”
Wedbush believes Nvidia is more than up for the challenge.
Nvidia: The AI bellwether
“All indications we have seen from our recent Asia checks along with the rest of our Wedbush Tech Team is showing massive demand for AI use cases across the board which is benefitting the only AI game in town (for now) Nvidia on the chip front,” said Wedbush.
“We believe Wednesday will be another clear sign from Nvidia with robust guidance that enterprise demand is skyrocketing for AI buildouts and will be key data points that further validates our tech bull thesis playing out into 2024.”
Far from seeing an AI bubble burst on the horizon, Wedbush analysts predict US$800 billion in enterprise and consumer spending in the AI sector over the next decade, proving it’s “NOT a hype cycle but transformational spend”.
“Rome was not built in a day, and neither will the AI ecosystem overnight but let's be clear, this buildout is unlike anything we have seen since the Internet in 1995 and the ramifications are just starting to ripple through the consumer/enterprise landscape.”
So, is Nvidia partying like it’s 1999 or 1995? We’ll find out on Wednesday.
One thing is for sure though: Nvidia has swiftly become the bellwether for AI as a whole.