NVIDIA shares (NVDA) is on track to experience a comfortable triple-digit percentage gain again in 2024, after an increase of almost 240% in 2023.
This year’s increase is largely due to a product that didn’t even ship until the last quarter of the year: Blackwell.
It is the largest GPU (graphics processing unit) ever built, created by connecting two chips through a high-bandwidth interface (HBI). Simply put, this translates to a lot of power with high efficiency, which is why it is in such demand by so-called hyperscalers – companies like Alphabet (GOOG) and Microsoft (MSFT) who are building huge data centers to power large language models (LLM).
This strong demand for Blackwell and the 170% rise in Nvidia shares is what led Yahoo Finance to name the chip its 2024 Product of the Year.
“Technically, Blackwell is a beast,” Matt Kimball, an analyst at Moor Insights & Strategy, told Yahoo Finance in an email. “Blackwell represents an exponential leap forward as it is a dual GPU on a single chip with faster connectivity, a larger pool of high bandwidth memory (HBM3E) and the introduction of the decompression engine of NVIDIA to make data processing much faster (up to 6 times compared to last year). to Hopper).
First announced in March, Blackwell is in the right place at the right time. Data centers that power Generative AI or LLMs are currently busy entering data and training these models. Blackwell and his predecessor, Hopper, are well suited to the job.
Blackwell represents a huge step forward in power. It contains 208 billion transistors, more than two and a half times Hopper’s number.
Its GB200 NVL72 server, which combines 72 Blackwell GPUs with 36 Grace processors, delivers up to 30x better performance than the same number of Hopper GPUs for LLM inference workloads. It also consumes up to 25 times less energy.
“For us to leap forward by an order of magnitude is pretty unheard of,” said Dion Harris, director of accelerated data center, HPC (high performance computing) and AI at Nvidia, during a telephone interview. “We were limited by physics, but we recognized that innovating with the HBI would allow us to scale communication and computation to the chip level.”
Spending by U.S. companies on generative AI has increased sixfold in one year, from $2.3 billion in 2023 to $13.8 billion in 2024. according to Menlo Ventures. And the trend is only growing, as major companies, from banking and retail to technology and hospitality, race to introduce chatbots and advanced assistants to their customers.
Nvidia customers pay a lot for their chips. The company doesn’t break out Blackwell’s sales specifically, but KeyBanc analyst John Vinh estimates Blackwell will be worth $4 billion to $5 billion in revenue in the current quarter.
“After the fourth quarter, we should start to see a pretty rapid ramp-up,” he said in a phone interview. “For next year, we are modeling $187 billion in IT data center revenue, 80% of which is expected to come from Blackwell.”
“With such a dominant market share, they have pricing power,” he added. “As a hyperscaler, you pretty much have to pay Nvidia whatever they want.”
Nvidia’s rivals like AMD (AMD) and even Amazon (AMZN) are working hard to develop their own alternatives. How long the GPU giant’s AI chip dominance can last has been a subject of debate since its revenue shock in May 2023.
These questions have become louder in recent times. His actions have decreased by 12% since their record close on November 7. And since the beginning of December, other news on semiconductors has created a buzz, notably that of Amazon. Trainium2 and Nova semiconductors.
Broadcom (AVGO) has is gaining momentum following its earnings report, catapulting its market capitalization to over $1 trillion. The focal point of enthusiasm lies in society AI chip company under contractwhich CEO Hock Tan said would reach a “total usable market” of $60 billion to $90 billion by 2027.
That said, “no one has been able to come up with a successful custom solution” that matches Nvidia’s, Vinh said.
Since Nvidia’s profits have grown rapidly alongside its stock price, its valuation has remained competitive with other chipmakers. Its forward price/earnings ratio, for example, amounts to nearly 31, compared to 25 for AMD and 46 for Broadcom, according to Yahoo Finance data.
Companies like Amazon remain Nvidia customers even if they develop competing products. Nvidia dominates the market for training generative AI models — accounting for about 85% share — “and they’re not losing,” said Ben Bajarin, CEO of Creative Strategies.
But once this training is complete, the models will turn to inference, implementing all the information they have digested and learned. The power needed for inference is typically lower than for training, although Nvidia CEO Jensen Huang has always maintained that his company’s chips are also well suited to this stage.
One of the factors that determines whether customers will continue to buy is cost. In addition to being the most advanced chips, Nvidia chips are also the most expensive. The company touts its TCO, or total cost of ownership, with an emphasis on computing power versus power consumption over the life of the chips.
“I doubt they will have the same market share as today,” Bajarin said. “There will be a lot more competition for inference.”
Until now, however, Nvidia’s main sticking point has been its own supply chain. A chip of Blackwell’s complexity and power had manufacturing and design problems, as Huang acknowledged. After delays, the chip is expected to ship in the fourth quarter and ramp up production next year.
“Blackwell’s production is in full swing,” Huang said during the company’s latest earnings call. “I think we’re in really good shape as far as the Blackwell ramp is concerned at this point.” The company nevertheless said that demand would exceed supply for several quarters.
Nvidia’s overall sales growth pace is expected to slow over the next year, due to the “law of large numbers,” Jordan Klein, an analyst at Mizuho Group, said in an email. Nvidia’s sales increased 126% in calendar year 2023 compared to the previous year. They will increase 111% this year, according to analysts surveyed by Bloomberg, and 52% next year.
“There’s really nothing to worry about, demand always exceeds supply,” Klein said.
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Julie Hyman is the co-host of Market dominance on Yahoo Finance. You can find her on social media @juleshyman.
