Bram Berkowitz
Shares of artificial intelligence (AI) giant Nvidia (NVDA 5.27%) traded nearly 4.5% higher in the final half hour of trading on Friday. While there was no obvious catalyst behind the move, the stock market rebounded today after another difficult week and Nvidia also seems to be benefiting after a positive update from one of its suppliers.
AI demand still on solid footing
Taiwan-based Foxconn, also known as Hon Hai Precision Industry, reported fourth-quarter net income of $1.41 billion, which missed analyst estimates and also declined 13% year over year. However, management on an earnings call said it expects demand from its AI server business to more than double in the first quarter of 2024, according to Reuters.
Chairman Young Liu said on the call:
“We have not seen CSP [cloud service providers] demand slowing down. There are [market] rumors that CSP demand will peak this year, and then it will go down next year. But we are not seeing that … at least for Foxconn.”
Liu added that AI server revenue should make up over half of Foxconn’s total server revenue in 2025 and that it is increasing production for Nvidia. Late last year, Foxconn announced that it would build a large plant in Mexico in order to keep up with the intense demand for Nvidia’s Blackwell graphics processing units.
“Some tariff factors may affect demand … But we have planned in different regions over the past years and have made our supply chain resilience better than it was eight years ago during President Trump’s first term,” Liu said.
Uncertainty still high
While Friday marked a quieter day on the tariff front, at least as of this writing, I don’t think the trade war is done yet. Nvidia will also likely continue to deal with uncertainties from export controls and potential weakness in the economy.
While I’m not personally a buyer of Nvidia right now, the stock trades at just under 27 times forward earnings, which is a much more attractive valuation than in the past when it could trade upward of 50 times forward earnings, especially if AI demand stays hot.
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