Will NVIDIA continue to surge?

On March 8th and 11th, NVIDIA experienced a maximum drop of 13.6% in two days, causing concerns in the market about its potential bubble. But is this really the case?

Overnight, NVIDIA surged by 7%, seemingly in response to the short sellers. In after-hours trading, it continued to rise by 1.5%, already reaching a new record high.

Industry Growth Outlook

In the field of generative artificial intelligence, Bloomberg predicts that by 2030, the market for generative AI is expected to achieve a compound annual growth rate of 42%! It is still in its early stages.

Forecast for the size of the generative AI market (in billion US dollars):

The Profound Transformation Brought by AI

According to predictions from Ark Invest's Cathie Wood: AI is expected to boost GDP by 130%, a much greater impact than all major technological advancements such as steam engines and the internet.

Furthermore, AI is driving rapid economic growth in North America. Wall Street is very optimistic about the economic outlook, believing that the economy will move towards a "Goldilocks" scenario (high growth and low inflation) or even a higher growth rate akin to the "roaring 1920s". In either case, it indicates that AI is propelling high-speed growth in the North American economy.

Under the major trend of AI, increased spending is significantly boosting productivity. Jason Draho, Head of Asset Allocation for the Americas at UBS Global Wealth Management, stated in a report on Monday that the major trend of AI and the absence of negative supply shocks could lead to improved productivity without triggering an inflation rebound.

The U.S. has also revised its fourth-quarter labor productivity, with a final value of 3.2%, compared to the 10-year average of 1.6%:

NVIDIA plays a crucial role in this AI revolution, holding over 90% of the AI chip market share:

Investment Bank Perspectives

Over the weekend, Cantor Fitzgerald raised NVIDIA's stock target price from $900 to $1200, stating that the company's recent annual developer conference, GTC, may reveal more growth opportunities, including some lesser-known businesses. The new target price is one of the highest listed on FactSet, indicating a 37% upside potential from the current level.Morgan Stanley remains optimistic that NVIDIA can continue to rise, believing that from both a valuation perspective and a long-term view, it cannot be considered that NVIDIA is nearing its market peak, refuting the notion of a "Cisco moment" put forward by some.

J.P. Morgan also pointed out in its research report that the current AI infrastructure investment frenzy is only in its early stages, far from reaching the level of the internet bubble over 20 years ago. GPU investment is just beginning, and investment growth in the supply chain will have a multiplier effect.

Wedbush, a Wall Street investment firm, stated that the recent large-scale sell-off of NVIDIA does not imply the arrival of an AI bubble. Instead, it reflects the underestimation of AI potential by some Wall Street fund managers and the concentrated profit-taking actions by investors.

Therefore, the market still holds high expectations for NVIDIA.

Currently, NVIDIA remains the computational foundation of the AI era. CEO Jensen Huang believes that the upgrade and replacement of industry hardware, including Sora and other strong AI application scenarios, are still in the early stages. He predicts that the industry will need around $2 trillion worth of NVIDIA chips to meet future computational demands. NVIDIA has also provided a Q1 revenue guidance of $24 billion, significantly higher than the market's expectation of $21.9 billion.

Wedbush predicts that this year, the proportion of technology companies' spending in the AI field will increase from less than 1% last year to 8-10%, in order to accelerate the improvement of the hardware infrastructure needed for AI applications and build a strong defense. Market research firm Gartner expects the AI chip market to grow by over 25% YoY to $67.1 billion this year, reaching nearly $120 billion by 2027.

This indicates that under massive market demand, "Huang's leadership" still has the potential to consolidate its position.

Facing competitors, NVIDIA is not sitting idly by. The CUDA computing platform and its mature software and hardware ecosystem form a solid technological moat, while "Huang's leadership" continues to push forward with product research and iteration.

NVIDIA has announced that at the upcoming GTC conference in March, it will release breakthroughs in accelerated computing, generative AI, and robotics. The market expects its next-generation GPU chip B100 to be unveiled simultaneously, undoubtedly igniting the AI market once again.

For "Huang's leadership," this is a crucial roadshow to break market disagreements and once again prove the dominant position and strength of AI chip technology. For investors, this will also be a window to observe whether NVIDIA can continue to rise significantly.

The myth of NVIDIA's high growth seems to be continuing, perhaps the surrounding competition will further ignite "Huang's leadership" fighting spirit, accelerating NVIDIA's pace of iteration. Where will it lead tech companies and the entire AI industry into a new era? Perhaps there will be an answer within the next year or two.

Key Performance Metrics

In the most recent quarter, NVIDIA achieved significant growth.

1. Overall Performance: Revenue & Gross Margin exceeded expectations. In this quarter, NVIDIA achieved a revenue of $22.1 billion, a 265% YoY increase, surpassing market expectations ($20.4 billion). NVIDIA also achieved a gross margin (GAAP) of 76% this quarter, also exceeding market expectations (75.2%).

• Gross margin hit a historic high, mainly driven by the strong performance of the data center business, boosting the overall gross margin. The net profit in this financial report is $12.3 billion, a 769% year-on-year increase, also marking a historic high in profitability.

• Core business situation: Data center continues to lead. The data center business accounts for 83% of the company's revenue, making it the most core business currently.

1. The gaming business in this quarter saw a 56.5% year-on-year growth, continuing to recover. The main reasons for the recovery of NVIDIA's gaming business this quarter are:a) The recovery of the PC market, to some extent, has increased the demand for GPUs; b) The recent rise in currency values has also boosted the demand for some graphics cards.

2. The data center business in this quarter saw a 409% year-on-year growth, hitting a new high, mainly driven by strong demand for large models, recommendation engines, and generative AI.

3. Key financial indicators: Expense ratio hits a historic low. NVIDIA's operating expense ratio this quarter continued to decline to a low of 14.4%. This is mainly due to the sharp increase in revenue, leading to a significant decrease in the expense ratio. The inventory ratio is currently at a historic low, indicating that the company's current product situation is still in high demand.

4. Guidance for the next quarter: NVIDIA expects revenue of $24 billion (±2%) for the first quarter of the 2025 fiscal year, a 234% year-on-year increase, surpassing market expectations of $21.8 billion; gross margin for the first quarter is expected to be 76.3% (±0.5%), also exceeding market expectations of 75.1%, setting a new high.