FXT Investments says its bet on AI paid off today

Driven by the demand for AI, Nvidia's second-quarter earnings performance exceeded expectations, and its share price soared as much as 10% after hours. Shares have risen nearly 230% this year.

Financial Highlights

The company said revenue doubled to $13.50 billion in its fiscal second quarter ended July 30, and earnings per share were $2.70, excluding certain itemsfar moreAnalysts' expectations.

After becoming the first semiconductor company ever to reach a market capitalization of $1 trillion,Nvidia reached another milestone in revenue this quarter: quarterly sales surpassed Intel's for the first time.Although Nvidia's valuation has been higher than Intel's since 2020, its revenue outpacing Intel's chip pioneer shows the wide range of applications of its products.

BI technology industry analyst Kunjan Sobhani believes that Nvidia's second-quarter performance improved significantly, replicating the performance of the first quarter, indicating continued strong demand for data centers.The guidance for the third quarter was 29% higher than the consensus, indicating that the company's supply will be better than expected.Gross margins (guidance 112 basis points above consensus) are likely to continue to rise as data center revenues increase.

Like many of its peers, Nvidia does not have its own chip production lines, relying instead on outsourced manufacturing services from TSMC and Samsung Electronics, which saves it the expense and risk of investing in production but also reduces its ability to adjust supply quickly.

There were concerns that tight supply could hamper Nvidia's sales this quarter.But its guidance suggests the company is running smoothly.Chief Financial Officer Colette Kress said the company is satisfied with the progress it has made in acquiring more components.

She told analysts on a conference call:"We expect supply to increase throughout next year."

Nvidia's division that provides chips for data centers used to be a secondary business.But it has now become the company's largest source of profit.The division's sales last quarter were $10.30 billion, compared with expectations of $7.98 billion. Gaming revenue was $2.49 billion, compared with analysts' average forecast of $2.38 billion. Automotive-related chip revenue was $253 million.

The personal computer market, once Nvidia's largest source of revenue, has declined over the past year, but it is now back as a driver of growth for the company.The Santa Clara, California-based company says demand for laptop components is particularly strong.

Performance guidancefar moreexpect

Nvidia issued guidance that beat Wall Street expectations for the third time in a row, projecting sales of about $16 billion in the three months ending in October, 28% higher than Wall Street's forecast of $12.50 billion, and the difference is almost equal to the company's total annual sales in 2021.

That underscores Nvidia's position as the main beneficiary of the artificial intelligence computing boom. Faced with a surge in demand for chatbots and other tools, data center operators are hoarding the company's processors, which are good at handling the heavy lifting of AI. That helped Nvidia quickly emerge from the downturn in the chip market and accelerate sales growth to its fastest level in years.

"A new era of computing has arrived," Jen-Hsun Huang, chief executive, said in a statement. He said companies around the world were turning to more powerful computing technologies that could handle generative artificial intelligence like ChatGPT.

Nvidia also approved a $25 billion share buyback program.

NVIDIA's strong performance has saved technology stocks

Nvidia's strong second-quarter earnings not only boosted the share prices of chipmakers such as AMD and Broadcom, but alsoLet the entire technology sector breathe a sigh of relief.

A few days ago, investors had little reason to be optimistic that the Nasdaq 100 was on track for its worst performance of the year this month.But now the Nasdaq 100 has a chance to change course.Because Nvidia's performance temporarily eased concerns that tech valuations were out of touch.

The Nasdaq 100 had its best first half on record amid speculation that AI would bring wealth to tech giants, before falling for three weeks as investors worried about the threat of a recession and high Treasury yields.

The Nasdaq 100 has fallen 4 per cent from its high last month and is trading at 24 times projected profits over the next 12 months. That is down from 27 times in July but still above the benchmark's average of 21 times over the past decade.

In addition to Nvidia, strong results from three software makers, Autodesk, Snowflake, and Splunk, could also boost the tech sector as a whole.

Investing.com senior analyst Thomas Monteiro said:

"Nvidia's results show that bets on AI are paying off today. That's important because it validates claims that have supported tech stocks this year."

FXTInvestments continue to focus on NVIDIA...................