Nvidia races towards $1tn club as AI frenzy drives chip stocks higher

Nvidia’s blowout sales forecast has set the Silicon Valley company on course to become the first chipmaker to be valued at more than $1tn, as booming demand for its artificial intelligence processors drove semiconductor stocks higher on Thursday.

Shares in Nvidia rose 23 per cent on Thursday morning in New York after its $11bn sales forecast for the three months ending in July came in more than 50 per cent ahead of Wall Street’s previous estimates.

Nvidia added some $170bn to its market value following Wednesday’s quarterly report, more than the entire value of Intel or Qualcomm and the biggest one-day gain ever for a US stock, according to figures from Bloomberg. With a market capitalisation of $927.2bn, Nvidia appears within reach of joining Apple, Microsoft, Alphabet, Amazon and Saudi Aramco in the elite group of companies valued at more than $1tn.

Alongside Nvidia, chip suppliers including Taiwanese manufacturer TSMC and Dutch equipment maker ASML reported the biggest gains, up 3.5 per cent and 5 per cent respectively.

Wednesday’s results bolstered Nvidia’s claim to be the only company whose tech is capable of meeting demand from across the industry to build generative AI, systems capable of creating humanlike content. The group pointed to “exponential growth” in demand for computing power from cloud and internet companies as well as the automotive, financial services, healthcare and telecoms industries.

Products including Nvidia’s most powerful H100 processor have become much sought after, not only by Big Tech companies but a new wave of AI start-ups, such as OpenAI and Anthropic, which have raised billions of dollars in venture funding over recent months.

“We are obviously seeing a huge spike in AI demand and Nvidia is at the very front line of that,” said Geoff Blaber, chief executive of CCS Insight, a tech consultancy, describing its chips and allied software tools as the “picks and shovels” of a “generational shift in AI”. “They are without doubt in pole position because they provide a very comprehensive toolchain that no other company is able to currently.”

AMD, which like Nvidia makes the specialised chips best suited to training vast sets of data for AI, jumped 8 per cent in early trading, while Micron, the American memory chip supplier that faces new trade restrictions in China amid escalating tensions with the US, climbed 4 per cent. Shares in Microsoft and Google were up too.

Several US and Japanese equipment suppliers to chipmakers also rose. Tokyo Electron climbed 3 per cent while Tokyo-based Advantest, which makes semiconductor testing kit, was up 16 per cent. In the US, Applied Materials and Lam Research were slightly higher in pre-market trades.

However, Intel — seen by investors as lagging behind in the transition to AI — fell 5 per cent in early trading, as investors bet that AI would accelerate a fundamental shift in datacentre technology at cloud providers such as Microsoft, Amazon and Google, along with internet groups including Meta.

Even before Thursday’s move, shares in Nvidia had doubled in 2023, as last year’s concerns about a slowdown in cloud spending after a pandemic-era splurge by Big Tech gave way to frenzied enthusiasm for a new generation of AI, led by chatbots such as OpenAI’s ChatGPT and Google’s Bard.

Even as Amazon, Google, Meta and Microsoft all invest in their own custom chips for AI, analysts said few companies could match Nvidia’s technological advantage.

Over recent years, Nvidia’s stock has risen and fallen alongside previous waves of hype around cryptocurrencies and earlier generations of AI such as autonomous driving that failed to deliver on their initial promise.

But Jensen Huang, Nvidia’s chief executive, said on Wednesday’s call with analysts that 15 years of investment and expanding production capability left Nvidia in the right place at the right time when ChatGPT set off an even bigger investment cycle by the world’s richest companies.

“When generative AI came along, it triggered a killer app for this computing platform that’s been in preparation for some time,” he added.

“With generative AI becoming the primary workload of most of the world’s data centres generating information, it is very clear now that . . . the budget of a data centre will shift very dramatically towards accelerated computing, and you’re seeing that now.”