Stock Story -
What Happened: Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) jumped 7.5% in the afternoon session after continued strong momentum following a strong earnings report last week. This helped drive the Nasdaq to a record high. The tech-heavy index crossed the 17,000 mark.
There was also some positive news over the weekend. The Information reported that Elon Musk's AI company, xAI, announced plans to buy Nvidia's AI chips for its new supercomputer. On Monday, May 27, 2024, xAI announced its series B funding round on the social media platform X.com (formerly called Twitter). The AI start-up raised $ 6 billion to "take xAI's first products to market" and to "build advanced Infrastructure." According to the reports, it is likely that the development of the infrastructure will birth a massive computing system - dubbed "the Gigafactory of computing" - which is expected to use 100,000 semiconductors based on NVDA's H100 GPU, and with an estimated size exceeding 4x the biggest cluster in existence.
Overall, the report suggested that it is still early days in the hot AI market while providing more definitive insight into the growing demand for Nvidia's AI chips.
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What is the market telling us: Nvidia's shares are very volatile and over the last year have had 11 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago, when the company gained 11.2% on the news that the company reported first quarter earnings results. Nvidia recorded healthy gross margin improvement, indicating elevated pricing power. Its revenue and EPS outperformed Wall Street's estimates, driven by better-than-expected results in its data center and automotive segments; the result in its automotive segment (17% year-on-year revenue growth) was especially impressive given the industry is in a cyclical downturn and many other semiconductor companies have posted year-on-year declines for that end market.
Lastly, its inventory levels increased, likely due to the company stocking up on products in anticipation of strong demand.
During the announcement of the results, Nvidia issued a 10-1 stock split that will commence on Friday, June 7, 2024. Looking ahead, Nvidia's revenue for the next quarter beat expectations again. Overall, this was a great quarter that shareholders will appreciate.
Nvidia is up 136% since the beginning of the year. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $31,676.
