Nvidia to Win Big from ChatGPT Hype, Wall Street Predicts

(Bloomberg) — In the weeks since artificial intelligence tool ChatGPT took the world by storm, Nvidia Corp. has become Wall Street’s preferred choice for traders looking to capitalize on its potential.

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The chipmaker’s stock is up 29% year-to-date, putting it among the top performers in the S&P 500. The hype surrounding the chat bot released by OpenAI at the end of the year latter contributed to these gains and demonstrated an amazing ability to imitate human handwriting.

The reasoning is simple: Nvidia dominates the market for graphics chips designed for the complex computing tasks needed to power AI applications. The more people use ChatGPT, the more computing power its owner OpenAI needs to generate responses to the millions of queries it receives from lazy students with essay assignments or struggling songwriters.

On Monday, Microsoft Corp. announced that it was making an investment in OpenAI that would total $10 billion over several years. The funding is needed by OpenAI to increase computing power and will likely only boost demand for Nvidia chips. Nvidia shares jumped 6.5%.

Last week, Citigroup Inc. estimated that the rapid growth in ChatGPT usage could drive sales for Nvidia of $3 billion to $11 billion over 12 months. Analyst Atif Malik, while acknowledging the difficulty of modeling the growth of such a nascent service, based his values ​​on projections of word count generated by ChatGPT and revenue per word for Nvidia.

“We believe that Nvidia has a potentially significant compute request engine in ChatGPT,” Malik wrote in a research note last week.

Bank of America Corp. said Nvidia is at the forefront of companies that stand to benefit from the growth of so-called generative AI. Wells Fargo & Co. said Nvidia’s upcoming chips are well positioned to take advantage of the larger computing needs required by AI models like ChatGPT.

Of course, it’s possible that the service is just the latest fad spreading across the tech industry only to plummet like orders from cryptocurrency miners, which have surged and crashed multiple times over the past few years. years. Nvidia investors and those who invested in other semiconductor makers in late 2021 know that the promise of continued growth may be an illusion. After sales jumped more than 50% in each of Nvidia’s last two years, revenue is expected to be flat in fiscal 2023 at around $27 billion.

Nvidia shares have lost nearly half their value since peaking in November 2021. Despite the selloff, the stock remains one of the most expensive on the Nasdaq 100, with a price that is around 41 times projected earnings on the next 12 months, well above its average. during the last decade.

Analysts see the stock gaining 13% to $200.68 over the next 12 months, based on the average price target.

Whether or not ChatGPT itself leads to an increase in orders for Nvidia, Ivana Delevska, Chief Investment Officer at SPEAR Invest, believes its success will fuel the development of more tools that will require more computing power and therefore more chips. .

“People will see how popular it has become and can see how big of a deal this kind of thing is going to be,” said Delevska, who counts Nvidia among the company’s top holdings. “That could mean more and more interest in this space, which will lead to a ton of additional investment from all kinds of companies wanting to catch up.”

Today’s Technical Chart

The Nasdaq 100 index rose 2.9% on Friday, its biggest gain since November, on the back of strong results from Netflix Inc. and after Alphabet Inc. announced 12,000 job cuts. The index rallied as tech companies focus on cost cutting and inflation shows signs of easing. The high-tech gauge rose for a third consecutive week, its longest such streak since August.

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–With help from Ryan Vlastelica and Subrat Patnaik.

(Add Microsoft-related details in fourth paragraph.)

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