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Wednesday, May 31, 2023
When it comes to AI, it's all about Nvidia
Generative AI is the hottest trend on Wall Street. Ever since OpenAI’s ChatGPT debuted in late 2022, kicking off a flurry of activity in the space, investors have been piling into AI stocks. And Nvidia (NVDA) has been the biggest winner.
On Tuesday, the company became the first chipmaker to hit a $1 trillion market cap, before settling back below the mark, thanks to a massive runup on its share price after announcing it anticipates second quarter revenue well above Wall Street’s expectations.
It’s not just Nvidia’s earnings, though. The company has been working in the AI space for years, thanks to the fact that the graphics processing units (GPUs) it originally developed for video games also happen to be uniquely suited for running multiple processes at the same time.
That means companies can develop and run algorithms that would otherwise take far longer using traditional central processing units (CPUs). And no other chip maker can match Nvidia’s capabilities. It provides everything from the chips to the servers to the software necessary to train and deploy AI models.
And because it’s the tech industry’s go-to for GPUs powering AI systems, Nvidia is blowing up like never before. But it’s also put the company at the center of the generative AI hype bubble.
“As an investor, I get concerned when I see these big jumps,” Michael Arone, chief investment strategist at State Street Global Advisors, told Yahoo Finance Live on Tuesday.
“I think we’re getting ahead of ourselves in terms of the opportunity. But I think that will begin to take shape,” he added.
The future of generative AI is still cloudy
Companies with any ties to generative AI have been on a tear in recent months, as technologists and executives alike promote the technology’s future potential.
Microsoft, which is investing billions in OpenAI, and Google parent Alphabet, which is rolling out generative AI products of its own, have certainly benefited from the gold rush— shares of the firms are up 38% and 40% year-to-date, respectively.
Microsoft (MSFT) CEO Satya Nadella says generative AI will upend the search engine business. Alphabet (GOOG, GOOGL) CEO Sundar Pichai is going all in on the technology, with generative AI touching Google Search and Android. And Nvidia CEO Jensen Huang says AI is having its iPhone moment.
Those are some heady declarations. And so far, there have been some incredibly interesting use cases for generative AI. Search is certainly one area that’s set to improve, as evidenced by Microsoft’s Bing and Google’s Search Generative Experience. Microsoft’s Word and Google’s Docs also get a nice bit of help from generative AI, as well.
But exactly how those executives’ predictions play out across the broader economy is still very much up in the air. Part of that will have to do with just how much more productive AI makes us, explained eToro investment analyst Callie Cox.
“When it comes to AI…right now we’re in the hype stage. We’re trying to understand how much of this is real,” Cox told Yahoo Finance Live.
“For [AI] to be like the second coming of the internet or something that could take hold like the internet did, I think we need to see gains in productivity. Otherwise this could be an exciting technological innovation that fizzles out a little bit earlier than one expected.”
Generative AI is just one type of artificial intelligence that companies across industries are using. Chances are you use the technology today when you get an autocomplete suggestion for an email address or a recommendation while browsing for food on your favorite delivery app. Businesses, meanwhile, use it to predict future sales. In other words, AI encompasses a vast array of technologies.
The hype machine would have you think that generative AI is the be-all and end-all for the category. But that’s unlikely to be the case in the long term. And while Nvidia will undoubtedly benefit from the continued growth in AI, Wall Street’s focus on anything related to generative AI could end up being short sighted.
“I think you’ll continue to see anything with the generative AI label continue to do pretty well here at least for this year, probably into the first half of next year,” Arone said. “It won’t be for a little bit until you start to see the wheat separated from the chaff.”