Why Nvidia Became The 'Most Important Stock On Earth' Ahead Of Its Earnings Call

Nvidia has benefited from robust earnings growth and the hype around artificial intelligence. The anticipation of its earnings report was such that Goldman Sachs analysts called it the "most of important stock on Earth"

US-based tech giant Nvidia reported a solid earnings growth of over 265 per cent in the final quarter of 2023. According to company's earnings update, the revenue jumped 265 per cent year on year to reach $22.1 billion. Sequentially, it was up 22 per cent as the company reaped the benefit of surge in demand for artificial intelligence.

Market investors in United States, both retail and institutions, were anxiously waiting for the results. For hours before the earnings call was scheduled to take place, social media was filled with posts related to the "high" expectations from the firm. The buzz boiled to down the question of whether it will manage to beat Wall Street's expectations.

The post earnings movement in stock suggested that the firm was able to beat the estimates and many investors breath a sigh of relief. In extended trading hours, its stocks moved up by over 10 per cent.

The year 2023 proved to be a massive boost to the prospects of AI chip maker and investors are reacting to the euphoria around company's products as innovations in the sector gather pace. Company's shares are up over 200 per cent in the last one year and the rally is not expected to stop.

Nvidia founder and CEO Jensen Huang called the moment a tipping point for AI. “Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations.”

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The fate of Nvidia's stocks are not only linked to the company's prospects now. Commentary around the company before the earnings call has made sure that its importance outweighs its fundamentals.

"Most Important Stock On Planet Earth"

Before the earnings call, Goldman Sachs analysts called Nvidia's stock as the "most important stock on planet earth". As per its data, retail investors participation in the stock was at an all time high and ahead of the earnings call, the options positions suggested a 11 per cent swing in either direction.

Wealth management firm Wedbush reportedly said in a note to its clients that there would be pin drop silence on trading floors when the company announces its results. "When Nvidia holds its conference call this week you will be able to hear a pin drop on trading floors across Wall Street," the note read.

And the resultant rally in its stock showed why the investment firms attributed such importance to the chip maker's shares. Nvidia is up 40 per cent this year and is responsible one-third of Nasdaq 100 index's gain this year. The 200 per cent surge in stock value in last one year has propelled Nvidia to the fourth-largest firm in the Nasdaq index behind Microsoft, Apple and Amazon.

The market cap of the company stood at nearly $1.7 trillion. For perspective, its market cap stood at $364 billion at the end of 2022 when the frenzy around AI had just started due to the launch of ChatGPT. As OpenAI, Google and other tech giants increase their bets on the AI ecosystem, the company is expecting robust growth in revenue.

In its future guidance for financial year 2025 (Jan to Dec), the company said that it is expecting first quarter revenue to be at $24 billion, an 8 per cent sequential growth. The high growth potential has been noted by investors and its forward PE ratio is around 33 which is significantly higher than NASDAQ's forward PE ratio of 20. Looking at the euphoria around the company, it appears as if the company has become the bellwether for growth prospects in artificial intelligence for the world.

IoT analytics estimates suggest that the company has a 92 per cent market share in the data center graphic processing units (GPUs) market which power AI models.

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