Nvidia Stock Surges as Amazon and Google Parent Alphabet Boost AI Investments

Nvidia Corp. (NVDA) shares surged in extended trading on Thursday, following the company's fourth-quarter earnings report, which beat Wall Street's expectations. The graphics processor and platform provider reported record Q2 revenue of $13.51 billion, up 101% year-over-year and sequentially. Nvidia's data center segment grew 171% annually and 141% sequentially to $10.32 billion, representing 76% of total revenue for Q2. The strong performance was driven by increased demand for AI workloads, particularly in the area of generative AI.



Amazon and Google's (Alphabet) recent investments in Nvidia's GPUs have significantly contributed to the company's long-term growth prospects. Both companies are investing heavily in Nvidia's GPUs to power their AI workloads, particularly in the area of generative AI. This increased demand is driven by the growing interest in large language models and other AI applications. For instance, Meta Platforms Inc. CEO Mark Zuckerberg revealed that his company intends to buy more than 350,000 of Nvidia's H100 GPUs by the end of 2024, indicating a substantial investment in Nvidia's products (Source: Nvidia's fourth-quarter earnings call, January 2024).

Nvidia's data center segment has seen explosive growth, nearly tripling over the past five quarters to $10.3 billion, becoming the company's largest segment at 76% of revenue. This growth is primarily driven by large cloud infrastructure providers like Amazon Web Services (AWS) and Google Cloud Platform (GCP). Nvidia defines its data center segment as including server GPUs, networking, and AI cloud software. Data center revenue continues to be the growth engine Nvidia relies on to fuel its ongoing platform and processor development. The company is considered a leading indicator of AI demand in enterprises, validating that gen AI and the demand of LLMs is real.

Nvidia's commitment to rapid product development and investment in next-generation platforms like its Hopper architecture has helped maintain its lead in AI workload accelerated computing. The company reported $2.04 billion in R&D spending in Q2 FY2024, up 10% from $1.82 billion in Q2 FY2023, demonstrating its commitment to innovative technologies like Hopper. The GH100 GPU, Grace CPU Superchip, and NVLink interconnect fabric in Hopper boost performance for large AI models and high-performance computing applications. Nvidia is also investing heavily in its AI software stack, including the Nvidia AI Enterprise suite, which makes it easier for organizations to build and deploy Nvidia accelerator-powered AI solutions.

In conclusion, Nvidia's data center segment growth, fueled by AI workloads, has significantly influenced the company's overall financial performance and market position. The increased demand for Nvidia's GPUs, driven by Amazon and Google's investments in AI, has contributed to the company's revenue growth, increased profitability, solidified market leadership, and enabled significant investment in R&D. Nvidia's stock has surged this year, up 141.1% year to date, outpacing both the Zacks Semiconductor - General industry and key competitors like Advanced Micro Devices, Micron Technology, and Marvell Technology. However, investors should remain cautious, as the stock's valuation is high, and the company's ability to maintain its growth momentum depends on the continued demand for AI workloads.