Semiconductors star Nvidia (NASDAQ: NVDA) shot higher on Thursday morning, rising nearly 5% before retreating to about a 3% gain as of 11:11 a.m. ET. According to CNBC, there’s no great mystery as to why. Citing comments made on the network’s own Closing Bell: Overtime broadcast, CNBC quoted CEO Jensen Huang saying demand for Nvidia’s new Blackwell chip for artificial intelligence (AI) functions is going “insane.”
Oh, and Blackwell is still on schedule to go on sale in Q4, just a few months away.
The good news is having a (good) knock-on effect on Nvidia’s contract chips manufacturer, Taiwan Semiconductor Manufacturing (NYSE: TSM), which is up 2%. However, it’s having a less salutary effect on Nvidia rival Intel (NASDAQ: INTC). That stock is still down 0.9% after getting knocked for a 3.3% loss earlier in the day.
Commenting on how Blackwell might boost Nvidia yesterday, investment bank J.P. Morgan predicted this new chip will add “several billion” dollars to Nvidia’s sales in Q4, as TheFly.com reports. Those sales should also ramp as production rates build, bringing additional billions to Nvidia and TSMC as well.
But that’s not the only catalyst at work today. Yesterday, OpenAI announced it had just raised $6.6 billion in new cash “to accelerate progress” on its AI software. OpenAI specifically stated that some of this money would go toward “increas[ing] compute capacity” (i.e., buying AI chips, most likely from Nvidia, and with TSMC doing the grunt work).
On top of the extra revenues these two companies can expect to receive from OpenAI’s chip purchases, Nvidia will also benefit from the growing valuation of OpenAI itself, in which it is an investor. At last report, this latest funding round grew OpenAI’s private market value to $157 billion.
So, what does this mean for Nvidia stock? Well, Nvidia next reports earnings on Nov. 19, and the outlook is good. Analysts polled by S&P Global Market Intelligence forecast generally accepted accounting principles (GAAP) earnings to rise by better than 75% to $0.65 per share. Sales should be up 82% to $32.9 billion.
What investors are really going to be looking at, though — especially in light of these comments from J.P. Morgan and Huang himself — is what kind of forecast Nvidia gives in its Q3 report for Q4. Right now, analysts think earnings growth will slow to only 43%, but if Blackwell sales cause growth to beat that number, things could be looking very bright indeed for Nvidia stock going forward.
What’s good news for Nvidia will likely be good news for Taiwan Semiconductor as well. And with TSMC stock selling for a much cheaper valuation than Nvidia (31 times trailing earnings versus 56 times), TSMC may be the smarter play on Nvidia’s “insane” growth rate. It doesn’t hurt, either, that TSMC manufactures chips for a whole lot of semiconductor companies not named Nvidia (Intel among them). So, if for some reason Blackwell is delayed or its growth doesn’t pan out as planned, the effect on TSMC’s revenues will be blunted.
In this respect, diversification can be a virtue.
All this being said, I see much less reason to feel optimistic about Intel. Priced at a steep 93 times earnings, it’s the most expensive chips stock of the three and seems to be steadily losing ground to its archrival, Nvidia. Blackwell’s on-time arrival in Q4 can only make things worse for Intel, I fear.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
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