Nvidia (NASDAQ:NVDA) could be a winner in the artificial intelligence (AI) market this year. I am bullish on NVDA stock because Nvidia’s management is taking machine learning and its profit potential seriously in 2023.
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Nvidia is famous as a developer and manufacturer of graphics cards and other tech products. This was a tough industry to conduct business in last year, to say the least. Frustratingly, supply shortages morphed into supply gluts for tech components, and NVDA stock came under heavy selling pressure.
Consequently, Nvidia’s still-fresh fourth-quarter 2022 earnings report provided a crucial look into the company’s plans for the future. Thankfully, Nvidia is faring better than many of the company’s critics probably expected – and just as importantly, Nvidia’s management is ready and willing to fully embrace the machine-learning revolution.
Nvidia’s Revenue Declined but Still Beat Wall Street’s Forecast
Is there a way to put a positive spin on Nvidia’s falling revenue? It’s definitely possible, as Nvidia still managed to exceed expectations and deliver a number of positive surprises.
Here’s the breakdown of Nvidia’s Q4-2022 results versus the year-earlier quarter. The company posted $6.05 billion in revenue, down 21%. That might sound like a poor result, but analysts expected $6.02 billion, so Nvidia can claim a slight beat.
Turning to the bottom line, Nvidia reported $0.88 in non-GAAP earnings per diluted share. Is this good or bad? The answer depends on what you’re comparing it to. The result is down 33% year-over-year but up 52% quarter-over-quarter. Perhaps most importantly, it exceeded the consensus estimate of $0.81 per share. Following today’s news, NVDA stock finished 14% higher.
Nvidia Ushers in a New Era of AI Dominance
Nvidia’s quarterly results were pretty good, but let’s not bury the real headline here. The company’s published results were from late last year — before the AI trend really kicked in. Investors and analysts are mainly focused on the future of Nvidia, and that future will involve a heavy focus on machine learning.
In its press release, Nvidia announced that it’s “partnering with leading cloud service providers to offer AI-as-a-service that provides enterprises access to NVIDIA’s world-leading AI platform.” This marks a major shift in the company’s business model, as AI-as-a-service could become just as important to Nvidia as making graphics cards.
Going forward, Nvidia’s customers “will be able to engage each layer of NVIDIA AI – the AI supercomputer, acceleration libraries software or pretrained generative AI models – as a cloud service.” From developers to the end users of various gadgets, multiple clients will benefit from Nvidia’s push into the AI-as-a-service model.
Nvidia Addresses Concerns about Generative AI Involvement
Furthermore, in a conference call, Nvidia Executive Vice President and CFO Colette Kress had plenty to say about machine learning. She observed, “Generative large language models with over 100 billion parameters are the most advanced neural networks in today’s world.” Presumably, this is a reference to generative AI, which is now top-of-mind in the financial markets due to the popularity of OpenAI’s ChatGPT chatbot.
Kress addressed the concerns of anyone wondering whether Nvidia will participate in the generative AI trend. She assured that Nvidia’s “expertise spans across the AI supercomputers, algorithms, data processing and training methods that can bring these capabilities to enterprise.” Thus, Nvidia looks forward to “helping customers with generative AI opportunities.”
Analysts took note of Nvidia’s focus on AI and responded accordingly. Oppenheimer analyst Rick Schafer gave NVDA stock an Outperform rating and observed, “Management unveiled Nvidia AI cloud services, which we expect to be transformative.” Moreover, analysts with Piper Sandler raised their price target on Nvidia stock from $225 to $275, claiming, “Nvidia is the only legitimate way to play generative model training and inference today.”
What is the Price Target for NVDA Stock?
Turning to Wall Street, NVDA stock is a Moderate Buy based on 25 Buys, six Holds, and two Sell ratings. The average Nvidia stock price target is $255.21, implying 7.9% upside potential.
Conclusion: Should You Consider Nvidia Stock as an AI Play?
Nvidia’s decent quarterly financial results are only a small part of the overall story. Right now, investors and analysts are primarily interested in whether Nvidia is serious about deploying AI-enhanced products and services.
By now, the answer should be crystal-clear. Nvidia’s management is loud and proud in its support of the AI movement, including generative AI. Therefore, if you’re bullish on the future growth of machine learning, consider a position in a current competitor and possible future dominator, Nvidia.
