Evidence of the global demand for artificial intelligence (AI) formed a large part of NVIDIA Corporation's (NASDAQ:NVDA) blowout numbers that will lead to a 25% surge to a market value of almost US$1 trillion today.
A sizeable boost was seen for the wider chipmaking sector, other AI-driven companies and the investment funds that back them, with analysts saying some of this would be related to short-covering after some recent warnings of an AI bubble.
Giant chipmaker Taiwan Semiconductor Company's futures rose 6%, Dutch semiconductor equipment maker ASML rose over 5%, in Tokyo AI-power equipment supplier Advantest (NYSE:ATE) jumped 16%, chip maker SK Hynix rose 6% in Seoul and in London tech trusts Polar Capital Technology Trust PLC (LSE:PCT) and Allianz Technology Trust PLC (LSE:ATT) both rose either side of 3%.
What did NVIDIA say?
Revenues and earnings per share from the US chipmaker both fell less than predicted in the first quarter of the year, but it was management's forecasts for the second quarter that most impressed, as well as chief executive Jensen Huang identifying AI as a key driver of increased demand.
Sales for the maker of graphics processing units are seen rising to US$11bn in the current quarter from US$7.2bn in the first, which Wall Street had pencilled in around US$7.15bn.
Inventory dropped by around US$500mln to US$4.6bn, taking inventory days down from 212 to 165.
Based on guidance for expenses and tax imply a net profit of around US$4.2bn, comfortably exceeding the quarterly record of US$3bn from the final quarter of 2021.
What are analysts saying?
"I can't remember a semiconductor/hardware company as big as NVDA (multiple billions in sales) ever surprising with a guide this much higher versus expectations in my 20 years covering technology stocks," said analyst Dan Ives at Wedbush.
"We view Nvidia at the core hearts and lungs of the AI revolution given its core chips train and deploy generative AI applications like ChatGPT," he added.
Last year, NVIDIA's share price slumped 45% after a profit warning amid a slowdown in demand for graphics card and a surge in inventory.
Many sceptics have been warning of an AI bubble forming.
Ives suggested NVIDIA had rubbished this with "jaw dropping robust guidance that will be heard around the world" and have "a major ripple impact across the tech space and also cause a short covering for the ages today on Nvidia and other AI driven stocks".
It shows the historical demand for AI is happening now in the enterprise and consumer landscape, he said, reinforcing the argument that we are on the doorstep of "the 4th Industrial Revolution".
AJ Bell analyst Russ Mould was not quite as hyperbolic, but said the 25% after-market surge in the shares to an all-time high "looks understandable" in respect of the record quarterly profits expected.
"Although the ongoing inventory bulge does leave NVIDIA vulnerable to any further unexpected stumbles in demand," he said.
"For the moment, though, the AI hype-train is not only rolling but delivering, as far as NVIDIA is concerned."
While momentum investors seem happy to pile in, Mould said value seekers "are likely to be more reticent given how the stock trades on more than 20 times forecast sales and, even allowing for forecast upgrades, well in excess of 50-60 times earnings for 2023.
"Such multiples leave little margin for error should anything go wrong".
He noted that not everything is necessarily rosy for the global semiconductor industry, with overnight guidance from Analog Devices for its third quarter failing to deliver the hoped-for second-half recovery.
Read across benefits for other companies
Microsoft Corporation (NASDAQ:MSFT) is the number one beneficiary in the current quarter, Ives suggested, given its ChatGPT links and status as a 'go-to' cloud player for AI deployments.
Another is clearly Google-owner Alphabet Inc (NASDAQ:GOOG), though the company has had stumbles with what has seemed a rushed AI roll-out after ChatGPT stole a march, but has reported strong AI demand within its enterprise/consumer ecosystem.
Wedbush also suggested positive read-across for Super Micro Computer Inc (NASDAQ:SMCI) and Micron Technology Inc.
Cloud vendors are expected to be the primary beneficiaries of NVIDIA's increased supply of product.
Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) is also seen as a "slight" beneficiary, though the absolute revenue contribution to TSMC is more modest than the US chipmaker.