Weekly Buzz: Nvidia is still growing like a startup

Nvidia made $27 billion USD in revenue for the whole of 2022. Last quarter alone, it made three and a half times that. That growth has come from selling the chips that power AI, and with a nearly 8% weight in the S&P 500, its results have a real impact on the wider market.

What’s going on here?

Nvidia reported quarterly revenue of $96 billion USD on 26 August, up 106% from the same period a year ago. That was about $4 billion USD ahead of what analysts expected. The vast majority of that, $89 billion USD, came from its data centre business. For context, that same segment made $15 billion USD in revenue for the whole of 2022; a sign of how quickly AI infrastructure spending has scaled, and how much of it flows through Nvidia. For the next quarter, it guided to around $108 billion USD in revenue, also above consensus estimates.

Nvidia sells more than chips these days too. Earlier this month, it partnered with six major financial institutions to fund the buildout of AI infrastructure to the tune of $500 billion USD. The company is also investing directly in its own customers, backing a data centre project with OpenAI and committing billions to companies like CoreWeave and Anthropic.

What’s the takeaway?

For years, Nvidia was simply a chipmaker. Today, it's at the centre of an entire infrastructure ecosystem: making the hardware, investing in the firms that use it, and helping arrange the financing to build the data centres that house it. That's a strong position to be in, as  long as the economics of AI hold up. If you’re invested broadly in US equities, Nvidia's nearly 8% weight in the S&P 500 means you already have a stake in how this plays out.

(For an expert-vetted way to invest in AI’s growth, check out Flexible Portfolios.)

Investors’ Corner: How to plan for what you can't predict

When a group of music executives first heard the Beatles, they famously passed on them. These were experienced, well-resourced people working in an industry they knew deeply. They listened, they deliberated, and they got it wrong; not for lack of judgment, but because prediction gets hard when enough variables are in play.

Financial markets work much the same way, arguably more so, because participants are constantly reacting to one another, 24/7. Earnings, interest rates, geopolitics, consumer sentiment, government regulation, technological change; the variables stack up enough that even sophisticated analysis produces a wide range of possible outcomes.

To illustrate: the S&P 500's consensus year-end target for 2026 was around 7,500, and the index is already trading above that level as of time of writing, with four months still to go. Similarly, about 86% of S&P 500 companies beat their profit forecasts last quarter, the highest rate since 2021. None of this is particularly unusual: strategists have underestimated S&P 500 returns in 13 of the past 16 years, missing by roughly 10% on average.

Forecasts are valuable as frameworks for what could happen. For long-term investors, the key is to think through a range of probable outcomes, consider what each could mean for your wealth, and build a portfolio that's robust enough to cope with several of them.

(For a deeper dive on this, read our latest CIO Insights: Raise your odds of making millions.)

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.