Nvidia Awaits Earnings in Volatile AI Market, Stock Up 17%

Key Takeaway

• Nvidia's earnings report is highly anticipated amid a strong AI-driven season, with the stock up 17% since April 19 but still 7% below its March peak.
• Despite robust sector earnings, companies like AMD and Super Micro Computer saw stock declines post-earnings, highlighting market volatility.
• SK Hynix leads in next-gen HBM3E memory chips for AI, sparking debate among investors about the best memory chip maker to invest in.

AI Revolution Boosts Chipmakers

The artificial intelligence (AI) boom has significantly impacted the technology sector, particularly benefiting companies involved in AI hardware production. Nvidia Corp., known for its dominance in graphics processing units (GPUs) essential for AI computing, has become a focal point in the market. Despite Nvidia's earnings report being anticipated on May 22, the technology sector has already seen a healthy rise in profits, driven by increased demand for AI tools and cloud computing services. This surge is attributed to the heavy spending on AI gear, with major companies like Meta Platforms Inc., Microsoft Corp., Amazon.com Inc., and Alphabet Inc. indicating that capital expenditures will either continue at the current pace or increase this year.

Market Anticipation for Nvidia

Nvidia's position in the market is under scrutiny as it prepares to report its earnings, with investors and analysts keen to see if the company can meet high expectations. The stock has seen a 17% increase since April 19 but remains about 7% down from its March peak. This situation reflects the broader trend in the AI hardware sector, where strong earnings reports have not necessarily translated into stock gains. For instance, Advanced Micro Devices Inc. saw a nearly 9% drop despite raising its AI accelerator sales forecast, and Super Micro Computer Inc. experienced a 14% fall after its earnings report.

Memory Chip Makers in the Spotlight

The AI supply chain, extending across the Asia-Pacific region, includes a wide range of companies, from AI GPU producers to printed circuit board manufacturers. Memory chips, crucial for high-performance data processing in AI applications, have garnered particular attention. Samsung and SK Hynix, leading the memory chip market, have both reported strong earnings. SK Hynix recently announced it had become the first to mass-produce HBM3E chips, a next-generation high-bandwidth memory used in AI chipsets, marking a significant milestone in the industry.

Diverging Views on Investment Opportunities

Analysts and investors are debating the merits of investing in Samsung versus SK Hynix in light of the AI boom. Some, like Trent Masters from Alphinity Investment Management and Nam Hyung Kim from Arete Research, favor SK Hynix for its early leadership in high bandwidth memory (HBM) technology and its focus as a pure-play memory stock. Others, like Sung Kyu Kim from Daiwa Capital Markets, see potential in both companies but highlight Samsung's expected catch-up in the memory chip race, suggesting it may offer more upside in the near term. This divergence in opinions underscores the dynamic nature of the technology sector and the varying factors that investors consider when evaluating potential investments.

Street Views

• Mike Bailey, Fulton Breakefield Broenniman LLC (Neutral on Nvidia):

  "You have massive buyers of chips coming in saying we were already buying a ton, we’re buying even more. The question for Nvidia is: is it enough?"

• Solita Marcelli, UBS Financial Services (Bullish on AI computing stocks):

  "We are encouraged by many positives in tech fundamentals during the first-quarter reporting season, which in our view continue to support the investment case for generative artificial intelligence."