After soaring nearly 240% in 2023, Nvidia stock (NVDA) is on pace to return to triple-digit gains in 2024.
This year’s rally is due in no small part to a product that didn’t even ship until the final quarter of the year: Blackwell.
It is the largest GPU (graphics processing unit) ever built and is created by connecting two dies through a high-bandwidth interface (HBI). In layman’s terms, this means delivering more power with higher efficiency. That’s why it’s in high demand from so-called hyperscalers like Alphabet (GOOG) and Microsoft (MSFT), which are building huge data centers to provide power. Large-Scale Language Models (LLM).
That hot demand for Blackwell and the 170% jump in Nvidia stock is why Yahoo Finance named the chip its 2024 product of the year.
Read more: Here’s why Walmart won the 2024 Yahoo Finance Company of the Year award.
“Technically, Blackwell is a beast,” Matt Kimball, an analyst at Moore Insights and Strategy, told Yahoo Finance in an email. “Blackwell features dual GPUs on a single chip with faster connectivity, a larger pool of high-bandwidth memory (HBM3E), and significantly faster data processing (up to 6x relative speeds). With the introduction of NVIDIA’s decompression engine, we’ve made a huge leap forward.
First announced in March, Blackwell is in the right place at the right time. Data centers that power generative AI or LLM are now dedicated to inputting data and training those models. Blackwell and its predecessor, Hopper, are well suited for the task.
Blackwell represents a major advance in power. It contains 208 billion transistors, more than 2.5 times the number of hoppers.
Combining 72 Blackwell GPUs and 36 Grace CPUs, the GB200 NVL72 server delivers up to 30x performance improvement compared to the same number of Hopper GPUs for LLM inference workloads. It also reduces energy consumption by up to 25 times.
“It’s unprecedented for us to jump by an order of magnitude,” Dion Harris, Nvidia’s director of accelerated data centers, HPC (high performance computing) and AI, said in a phone interview. “While we were physically constrained, we realized that innovation with HBI would allow us to scale die-level communications and computing.”
According to Menlo Ventures, U.S. corporate spending on generative AI will increase sixfold in one year, from $2.3 billion in 2023 to $13.8 billion in 2024. And that trend is only growing as major companies from banking and retail to technology and hospitality race to equip their customers with advanced chatbots and assistants.
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Nvidia customers are paying more for tips. The company did not provide specific sales figures for Blackwell, but KeyBanc analyst John Vinh said he expects Blackwell to account for $4 billion to $5 billion in sales this quarter. are.
“We should see a pretty rapid recovery starting in the fourth quarter,” he said in a phone interview. “For next year, we’re modeling computing data center revenue at $187 billion, of which 80% should go to Blackwell.”
“Because we have such a dominant market share, we have pricing power,” he added. “As a hyperscaler, we have to pay whatever NVIDIA wants.”
Nvidia’s rivals like AMD (AMD) and Amazon (AMZN) are hard at work developing their own alternatives. How long the GPU giant’s AI chips will continue to dominate has been a topic of debate since recording a shocking sales jump in May 2023.
Recently, such questions have become popular. The company’s stock price has fallen 12% from its record closing price on November 7th. And since early December, other semiconductor news has been making headlines, including Amazon’s Trainium2 and Nova semiconductors.
Broadcom (AVGO) is gaining momentum following its earnings report and has a market cap of over $1 trillion. At the heart of the excitement is the company’s contract AI chip business, which CEO Hock Tan said will reach a “viable market cap” of $60 billion to $90 billion by 2027. said.
Still, Vin says, “no one has come out with a custom solution” as successful as Nvidia’s.
Nvidia’s revenue has grown rapidly along with its stock price, keeping its valuation competitive with other chipmakers. For example, the company trades at nearly 31 times forward earnings, compared to AMD’s 25 times and Broadcom’s 46 times, according to Yahoo Finance data.
Companies like Amazon remain Nvidia customers even though they develop competing products. Nvidia dominates the market for training generative AI models, with about 85% share, but “they’re not losing out,” said Ben Bajarin, CEO of Creative Strategies.
But once that training is complete, the model moves into inference, putting all the information it has digested and learned to work. Although the power required for inference is generally lower than for training, Nvidia CEO Jensen Huang has consistently maintained that his chips are well-suited for that stage as well.
One of the factors that determines whether a customer continues to purchase is cost. Nvidia is not only the most advanced chip, but also the most expensive. The company touts TCO (total cost of ownership), emphasizing computing power compared to energy usage over the lifetime of the chip.
“If I had to guess, I don’t think they would be able to capture the same market share that they have now,” Bajarin said. “Competition for reasoning will become even more intense.”
But so far, NVIDIA’s biggest friction point has been its own supply chain. As Huang acknowledged, Blackwell’s complexity and powerful chip has hit manufacturing and design hurdles. After delays, the chip is expected to ship in the fourth quarter of this year, with production ramping up next year.
“Blackwell’s production is running at full capacity,” Huang said during the company’s latest earnings call. “Right now, we think we’re in a very good place with Blackwell lamps.” Still, the company said demand will outstrip supply in the coming quarters.
Mizuho Group analyst Jordan Klein said in an email that Nvidia’s overall sales growth pace is expected to slow over the next year, which is a “law of large numbers” factor. Nvidia’s revenue increased 126% year-over-year in calendar 2023. It is expected to increase 111% this year and 52% next year, according to a Bloomberg analyst survey.
“There’s really nothing to worry about. Demand still outstrips supply,” Klein said.
Learn more about Yahoo Finance’s 2024 Business of the Year Awards.
Julie Hyman is co-host of Market Domination on Yahoo Finance. You can find her on social media @juleshyman.
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