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What's going on?
Shares in US chipmaker Nvidia jumped 15% on Wednesday and investors can thank artificial intelligence (A.I.)!
What does this mean?
Nvidia makes computer chips that are typically used to process graphics, such as those needed for computer games. Gaming makes up the majority of Nvidias revenue and continues to grow at an enviable pace (+50% over the past year) as activities like e-sports become even more popular. However, it was its A.I.-related business that caused Nvidia to beat Wall Street’s expectations. Nvidias chips are used by the likes of Google and IBM in their data centers which, in turn, provide the infrastructure that they and other companies use to develop deep learning software, a fast-growing area.
Why should I care?
For markets: Nvidia is making hay while the sun shines.
Nvidia makes about 60 cents in profit for every dollar of revenue it earns by selling its products, which means it has high margins. A company is typically only this profitable when it has built a strong, market-leading position. But staying at the forefront of hardware is notoriously difficult in the fast-moving world of tech: new software can quickly make hardware obsolete (just ask Cisco). This will pose a challenge that Nvidia will have to adapt to at some point but, for investors, thats an issue for another day!
The bigger picture: Gaming firms are having a great time!
Nvidia isnt the only company benefiting from gamings popularity: Electronic Arts, the American video game company, also saw its stock jump 15% on Wednesday following its first-quarter results. The growing e-sports craze is boosting sales both for the game developers themselves and for the chipmakers that provide the technical infrastructure.
Originally posted as part of the Finimize daily email.
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