It's been nearly three months since the debut of ChatGPT, but the world still can't get enough of the viral artificial intelligence (AI) chatbot. Since its debut, the chatbot continues to turn heads, and it has also re-ignited the investing community's interest in AI-related stocks. Microsoft (MSFT, Financial) and Alphabet (GOOG, Financial)(GOOGL, Financial) are leading the AI headlines thanks to their ability to integrate AI with their search engines. However, I believe it's stocks such as Nvidia (NVDA, Financial) which stand to benefit the most from the proliferation of AI.
Why Nvidia? Because Nvidia is a "pick and shovel" play on the AI space. It boasts a leadership position in the graphical processing units (GPU) market, representing the backbone of data centers, the gaming industry and AI.
Its GPUs, especially its latest ones, such as H100, have massive use cases in the cloud and AI spheres. H100 GPU is a force to be reckoned with, offering nine times faster overall performance than its predecessor the A100. Above all, it offers 30 times better performance in executing AI workloads. Additionally, Nvidia's GPUs can be used in inferencing large transformer models, which is huge for AI chatbots such as ChatGPT and Bard.
Nvidia has had a long history in the AI space, with its GPUs powering some of the most powerful supercomputers in the world. Meta Platforms (META, Financial) recently announced it was building one of the largest supercomputers in the world with Nvidia. Microsoft (MSFT, Financial) made a similar announcement earlier in the year, combining Nvidia's A100 and H100 GPUs to develop some of the most robust AI supercomputers.
Capitalizing on the AI wave
AI was written all over Nvidia's recently released quarterly results. The company announced new offerings in generative AI as well as a massive partnership with the top cloud service providers "to offer AI-as-a-service." The company's novel new service will give enterprises access to its "world-leading AI platform." Users will gain access to Nvidia's software libraries, DGX AI supercomputer and a cloud service.
According to CEO Jensen Huang, "AI is at an inflection point, setting up for broad adoption reaching into every industry." He sees massive interest in the capabilities of generative AI and Nvidia's role in moving the needle for the sector.
Moreover, the company has witnessed healthy growth in the data center business, including AI applications and cloud computing. In its most recent quarter, it generated 11% growth in its data center segment compared to last year.
These gains, however, failed to offset the 21% drop in sales from the prior-year period to $6.05 billion, driven mainly by lower gaming revenues. Gaming sales were down a remarkable 46%, as gamers decided to hang on to their existing processors because of rising GPU prices.
Nevertheless, Nvidia's data center segment will continue to grow in line with the proliferation of AI. The company's chief financial officer, Colette Kress, talked about the strong year the company had and the positive tailwinds from AI expected to lift the data center business to new heights. Organizations realize the power of AI in speeding up cost-saving initiatives, which should result in more GPUs being added to data centers.
Guru trades
Nvidia remains a guru favorite, with some of the most prominent guru investors loading up on the stock in the fourth quarter.
According to Tipranks, the hedge fund sentiment for Nvidia stock in the December quarter remained largely positive, with hedge funds increasing their stakes in the business by approximately $3.6 million.
Gurus who added to their shares in Nvidia stock recently include Baillie Gifford (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Mairs and Power (Trades, Portfolio).
On the flip side, those who reduced their positions in the stock include Ken Fisher (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio). Moreover, superstar stock picker Catherine Woods (Trades, Portfolio) reduced her position by a whopping 62%.
Final word
The tech world has been buzzing over the capabilities of AI and its impact on the valuations of the industry's needle-movers. Nvidia is arguably one of the top companies in the niche in my view, and yet it seems to have taken a backseat to the likes of Alphabet and Microsoft. Both Alphabet and Microsoft are locked in a tight contest on who will gain supremacy with their respective chatbots. Whoever prevails, though, Nvidia remains to benefit regardless.
Nvidia's top GPUs provide the massive computing power needed to power the AI space. Therefore, it could be another turning point for the company as it looks to correct the losses from last year and usher in a new era of growth. Moreover, in its most recent quarter, we have seen how its gross margins are back, hovering over 63% in its fourth quarter after having dropped to 57% in fiscal 2023. The return to winning ways on its bottom line is another sweetener for those looking to wager on the stock.
