Nvidia's recent blockbuster profit report has confirmed the growing importance of artificial intelligence (AI) in the future of technology. The company's fiscal first-quarter earnings of $1.09 per share on revenue of $7.19 billion, both well above Wall Street estimates, helped quantify the phenomenon as the firm nears an elite cast of tech leaders with $1 trillion market valuations. Nvidia's leadership position in the AI chip-supplying business has helped it reach a market value of over $950 billion. While AI will become a factor in virtually everyone's lives, its benefits tend to spread slowly, and the spillover from AI to the rest of the economy will be a multiyear, multidecade process.
However, the broader market's reaction to Nvidia's earnings report was underwhelming. While the S&P 500 semiconductor index jumped 11.4%, the broader Nasdaq Composite rose a more muted 1.7%. Economic slowdown concerns persisted, and small-cap stocks, for instance, were losing big, with the Russell 2000 off about 0.8% in early afternoon trading. The AI craze has also cooled for some companies, with nine big AI-related companies that came to market through initial public offerings over the past three years seeing their collective valuation down 74% from their debut levels.
Despite these challenges, AI's potential remains enormous. For example, OpenAI's ChatGPT, a chatbot that converses with the user, has helped bring home the potential of AI. "It's hard for me to overstate the value or the impact of AI, and it is in keeping with my view that this coming decade is all about the broader application of technology beyond what we've seen to date, beyond computers and phones, and that application has tremendous upside," said Steve Blitz, chief U.S. economist at TS Lombard. AI may end up making US Big Tech even bigger and more systematically important, rather than allowing upstarts to play the classic role of disruptive innovators.