It has been just three months since the artificial intelligence (AI) powered ChatGPT debuted. Since then, the viral chatbot has attracted a lot of attention. Late last month, Microsoft (MSFT -2.18%) officially confirmed a multi-year $10 billion investment in ChatGPT and its developer OpenAI, while expanding its partnership with the startup. Microsoft Azure will be the exclusive cloud provider for ChatGPT, and the company recently announced plans to bring ChatGPT technology to its Bing search engine.
Not to be outdone, Alphabet (GOOGL -1.94%) (GOOG -1.89%) quickly launched its own conversational chatbot – Bard. Unfortunately, the chatbot did not get off to a good start. The launch was marred by several very public faux pas giving incorrect answers during the demo.
Since then, stories have surfaced of both chatbots being very self-conscious about giving wrong answers, leaving investors wondering how to invest in the coming AI revolution.
The answer is hidden in plain sight.
AI runs on Nvidia
Nvidia (NVDA -1.60%) released its results for the fourth quarter of fiscal 2023 after the market close on Wednesday, putting a renewed focus on the graphics processing units (GPUs) that power these AI systems.
The semiconductor pioneer generated $6.05 billion in revenue, down 21% year over year, driven by a 46% plunge in gaming revenue. With inflation at historically high levels and interest rates rising, players have decided they can keep their existing processors just a little longer. Nvidia’s data center revenue — which includes cloud computing, data centers, and AI applications — fared much better, growing 11%. This resulted in earnings per share (EPS) of $0.88.
For comparison, analyst consensus estimates are for revenue of $6 billion and earnings per share of $0.81, meaning Nvidia beat expectations on both counts.
However, CEO Jensen Huang’s comment made it clear that the quarterly results represented a slowdown on the road to explosive growth. “AI is at an inflection point and preparing for widespread adoption that will reach across all industries,” said Huang. “From startups to large corporations, we’re seeing increasing interest in the versatility and capabilities of generative AI,” a clear nod to ChatGPT, Bard, and others.
Nvidia used its earnings report as a springboard for a slew of new offerings that capitalize on the recent buzz in generative AI. The company announced a comprehensive partnership with “leading cloud service providers to offer AI-as-a-Service” that will give companies direct access to Nvidia’s “world-leading AI platform.” Through their browser, customers can access every layer of AI — including Nvidia’s DGX AI supercomputer, software libraries, and even pre-trained models — all as a cloud service. This is already available on Microsoft Azure, Google Cloud and Oracle Cloud, with more announcements to come.
Highlighting other upcoming developments, Nvidia said:
We’re ready to help customers capitalize on breakthroughs in Generative AI and Big Language Models. Our new AI supercomputer with H100 and its Transformer Engine and Quantum 2 network structure is in full production.
This illustrates an important point: regardless of which chatbot wins the battle for AI dominance, the ultimate winner will be Nvidia, as the excitement around AI is driving increased demand for the GPUs that make all of this possible.
The turning point?
Nvidia investors have had a heartbreaking rollercoaster ride over the past few years. In the 10 years to November 2021, Nvidia stock is up more than 8,800%, fueled by the company’s gaming dominance and smart moves in AI, cloud computing, and data centers. However, amid macroeconomic headwinds, Nvidia stock fell off a cliff, falling as much as 66% from its peak, fueled by fears about the economic impact of the downturn.
The company seemed to be implying that the worst is over. For the first quarter of fiscal 2024, management is expecting revenue of $6.5 billion, down 21% year over year but improving 7% sequentially. The recovery is being helped by a slow recovery in gaming processor demand. “Gaming is recovering from the post-pandemic downturn, and gamers are enthusiastically embracing the new Ada architecture GPUs with AI neural rendering,” said Huang.
From the start it was clear that Nvidia’s recovery was only a matter of time. So far this year, the stock is quietly up 42%, a number that’s likely to climb even more as the company performs better-than-expectedly. Given the long career ahead, Nvidia stock is still a Buy.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Microsoft and Nvidia. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.