Nvidia nears record high, best wining streak since 2016 as AI bets ramp into Q3 earnings

Updated 8:11 am EST

Nvidia NVDA shares edged higher Tuesday, putting the group within touching distance of a fresh all-time high, as investors continue to bet on its AI leadership following the release of a new series of chips designed to tighten its grip on the trillion dollar market. 

Nvidia said its new H200 chip will be faster and will offer more memory to power both generative AI and large-language models than its H100 predecessor. The new chips, which are expected to ship in early 2024, will also make it easier for clients to run AI applications on Google Cloud using Nvidia-made chips with deeper integration between hardware and software offerings.

Nvidia unveiled a partnership with Google GOOGL in late August that seeks to leverage its cloud offering to clients, using Nvidia chips and its DGX supercomputing platform, to essentially create a new market for AI-as-a-service to thousands of companies worldwide.

“To create intelligence with generative AI and HPC applications, vast amounts of data must be efficiently processed at high speed using large, fast GPU memory,” Nvidia's Ian Buck, vice president of hyperscale and HPC said in a statement following the release of the H200 Monday. “With NVIDIA H200, the industry’s leading end-to-end AI supercomputing platform just got faster to solve some of the world’s most important challenges.”

The H200 release could help underpin Wall Street's optimistic revenue projections for Nvidia as investors continue to bet that AI-related technologies will be the tech sector's principal growth driver in the coming years.

Nvidia, which generated around $27 billion in revenues over its last fiscal year, which ended in January, is expected to see that tally more than double, to $55 billion, this year and rise another 50%, to $83 billion, in 2025. 

"We view AI as the most transformative technology trend since the start of the Internet in 1995 and believe many on the Street are underestimating the $1 trillion of AI spend set to happen over the next decade in a bonanza for the chip and software sectors looking forward with Nvidia and Microsoft MSFT leading the way," said Wedbush analyst Dan Ives.

Nvidia, which reports third quarter earnings next week, had earlier forecast revenues of around $16 billion a tally firmly ahead of the Wall Street consensus that would represent year-on-year growth of around 170%.

The revenue gains are also coming alongside impressive profitability, with third quarter gross margins expected at around 72.5%, with a 2% margin of error, a level that would translate into earnings of around $3 per share.

Goldman Sachs, which added Nvidia to its closely-tracked 'conviction buy' list last month, argues the chipmaker will "maintain its statues as the accelerated computing industry standard for the foreseeable futures given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models."

The group is also expanding its reach into the PC market, where rival Intel INTC holds the lead position, with reports suggesting it will use technology from Arm Holdings to design CPUs that will run the Microsoft MSFT operating system.

Nvidia was one of Arm's biggest financial supporters heading into the September IPO and tried to buy the group before being thwarted by regulators in the U.K. last year.

One near-term risk to Nvidia forecasts, however, is the impact of U.S. export restrictions on China-bound exports of AI-related technologies.

Media reports suggest Nvidia is set to unveil a new series of AI chips, designed for customers in China, that will comply with new export rules imposed by the U.S. government. 

Nvidia noted in a Securities and Exchange Commission filing in October, however, that "given the demand worldwide for our products, we don’t expect a near-term meaningful impact on our financial results" as a result of the new U.S. restrictions. 

Nvidia shares, which have risen for the last nine sessions, the longest winning streak since 2016, were marked 0.66% higher in pre-market trading to indicate an opening bell price of $489.40 each, a level that would value the Santa Clara, California-based tech giant at just over $1.2 trillion. 

The stock hit an intra-day peak of $502.66 each on August 24 and an all-time closing high of $493.35 each on August 31. 

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