What is driving the growth of technology companies?

Nvidia increased its quarterly profit by almost nine times. The company’s latest report greatly exceeded investors’ expectations. Nvidia’s revenue exceeded $22 billion and tripled compared to the fourth quarter of 2022. The company’s success is explained by the booming demand for its chips, which are widely used in artificial intelligence systems. At the same time, the market was expecting more modest results, and sales continued throughout the last week, which plunged Nvidia shares by 9%.

But after the publication of the report in the premarket, the securities managed to win back the fall. What can hinder the company’s success? Finam Financial Group analyst Leonid Delitsyn admits that investors are overestimating its prospects: “This huge demand, of course, does not mean that market players cannot be overly optimistic. Let’s remember the company Cisco, without which probably half of the Internet in the world would not work, but its shares are still cheaper or at the same level as they were 25 years ago during the Internet bubble. In principle, this could happen to Nvidia, because quarterly revenue is $22 billion and capitalization is $1.6 trillion, these are completely incomparable figures.

In fact, the market is now assessing its expectations, just as it did with Cisco 25 years ago. One thing is certain: in 25 years, Nvidia will likely be worth no less than it is today. But the stock could experience wild price swings in the near future.

The company could be harmed by the emergence of a strong competitor. The head of OpenAI said he will raise $7 trillion to create new chips for artificial intelligence. Competition may come from major market players: AMD, ARM, maybe Intel and, of course, Chinese companies. Because the Chinese have achieved great success in creating special processors for specific purposes.

While Nvidia processors are versatile enough to solve a wide range of tasks, Chinese manufacturers skillfully create special processors, for example, for Bitcoin mining. If it becomes clear to everyone exactly which tasks in the field of AI provide the greatest profit, then it is possible that the same craftsmen will make highly specialized processors that will be much cheaper and create serious competition.”

According to Bloomberg, the trading department of Goldman Sachs Group called Nvidia shares “the most important security on planet earth.” Analysts expect continued growth in revenue and net profit amid interest in artificial intelligence. The company is considered one of the main beneficiaries of the boom in this market. The question is how long it will last, notes MTS Red specialist Alexander Baulin: “Everything that we call artificial intelligence has had several waves of development.

When the first recognition systems appeared in the 1960s, it seemed that artificial intelligence would learn to recognize everything, for example, it would be used for both peaceful and military purposes. Then it turned out that there was not enough power for this, and he no longer saw anything in the noise. The so-called winter of artificial intelligence has arrived. The next revolution was in the 1990s, when a computer beat a human at chess and learned to recognize letters. We thought that now we would be able to understand everything, but no. Each time it turned out that there was not enough computing power for some larger set of tasks.

Now there is a new wave of development of artificial intelligence, when we have finally achieved the power that allows us to recognize more than just letters. The machine can recognize the meaning of text and generate pictures by studying thousands of previous images. The question is whether this will lead to something more than creating a summary of large text and pictures, or whether we will stop at this level.”

In February, Nvidia overtook Google and rose to third place on the list of the most valuable US companies. It was second only to Microsoft and Apple.

---

Everything is clear with us – Telegram channel “Kommersant FM”.

Ilya Sizov