What's Fueling the Nvidia's Unstoppable Rally?

Nvidia made significant announcements during its CES 2024 keynote, including the introduction of new graphics cards and updates to its AI and cloud gaming services. The GeForce RTX 40 SUPER Series GPUs were announced, boasting increased performance for gaming and generative AI applications, with the RTX 4080 SUPER, RTX 4070 Ti SUPER, and RTX 4070 SUPER set to hit the market in January at competitive prices. Jeff Fisher, Senior Vice President for GeForce, highlighted Nvidia's centrality in the generative AI movement, with RTX GPUs playing a crucial role.

The company showcased advancements in generative AI models for realistic gaming characters and applications. Nvidia's TensorRT-LLM library has accelerated large language models on RTX PCs, and the new chat with RTX playground will allow enthusiasts to enhance generative AI models with their own data.

Nvidia also revealed the RTX Remix open beta, which will help modders remaster classic games with advanced features like ray tracing and AI texture tools. Lastly, NVIDIA discussed the integration of generative AI in robotics, with companies like Boston Dynamics utilizing these advancements for better human-robot interactions.

Nvidia plans to start mass-producing the H20, an AI chip tailored for the Chinese market, in the second quarter of 2024 to meet U.S. export restrictions. The initial production will focus on fulfilling orders from key customers, with the launch delayed from the previous November due to manufacturing challenges.

The H20 is the most advanced among three China-specific AI chips designed to adhere to new trade regulations from October 2022. Despite not disclosing sales for the other two chips, the L20 and L2, Nvidia is working to provide compliant products globally. These chips are part of Nvidia's strategy to maintain its presence in China after U.S. export controls prevented shipping of its more advanced A800 and H800 AI chips. China accounts for a significant portion of Nvidia's data center business revenue. However, Chinese buyers are hesitant about the H20, exploring local alternatives in anticipation of potential further U.S. restrictions.

If the 'magnificent seven' stocks had an MVP, it would have to be Nvidia. The chip maker and inventor of the graphics processing unit (GPU) has been the biggest winner in the generative artificial intelligence (AI) gold rush to date by far. In its third quarter, revenue tripled from a year ago to $18.12 billion, and its margins expanded significantly, with generally accepted accounting principles (GAAP) earnings per share jumping more than 12 times to $3.71. On a GAAP basis, its profit margin was 51% in the quarter, and the company expects an even bigger fourth quarter, targeting revenue of $20 billion and a modestly higher gross margin.

Nvidia is entering 2024 with a target on its back. It's proven the market for AI accelerators and GPUs, and now semiconductor rivals like Advanced Micro Devices and Intel are launching their own AI accelerators. Big tech companies like Amazon and Apple are also entering the fray, designing their own chips for things like machine learning and neural engines, and for training large language models. However, despite increasing competition, there's a reason to bet on Nvidia's continued growth in 2024. There's still a significant shortage of AI chips as cloud infrastructure services, data centers, start-ups, and foundation models race to get ahold of the key infrastructure components to run new generative AI technology, which requires enormous computing power.