Nvidia: Does the chipmaker have capacity to meet AI demand?

Coming off of Nvidia's (NVDA) mind-blowing fourth-quarter earnings results, CEO Jensen Huang stated "accelerated computing and generative AI have hit the tipping point," expecting to see exponential demand growth worldwide.

Neuberger Berman Managing Director Dan Flax sits down with Yahoo Finance to talk Nvidia's value and growth expected out from its various business segments.

"If we think about what's going on here, Nvidia's solutions are empowering others, for example, cloud companies, to expand their business, create new revenue streams, and ultimately grow," Flax states. "And so this broader story about Nvidia's platform, its ecosystem with millions of developers, remains vibrant. I think we'll see good growth the rest of this year into next year as supply continues to come online."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video transcript

- Well, as we continue to dig into this, NVIDIA, of course, blowing minds once again, fueling further hype around AI with quarterly sales triple what they were a year ago. NVIDIA CEO Jensen Huang saying, quote, accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries, and nations. Well, joining us now is Dan Flax, Neuberger Berman managing director.

Dan, thank you so much for joining us. So in terms of the demand that we know is there, what about the capacity to meet that demand? How confident are you on that side?

DAN FLAX: Good morning. I expect NVIDIA and its partners to continue to add capacity in the months and quarters ahead. If we think about what's going on here, NVIDIA solutions are empowering others-- for example, cloud companies, to expand their business, create new revenue streams, and ultimately grow. And so this broader story about NVIDIA's platform, its ecosystem with millions of developers, remains vibrant. I think we'll see good growth through the rest of this year into next year as supply continues to come online.

- Dan, there are already concerns about the valuation of this particular stock going into earnings now, right behind Apple as well as Microsoft. Given the numbers that we got yesterday, does the valuation match where the company is? Do you see it pushing even higher?

DAN FLAX: We think the stock remains attractive here. If we think about the next couple of years, driven by the product cycles, NVIDIA should generate significant free cash flow, and that free cash flow will continue to grow in our view. And so when we look at the valuation in that context relative to the growth prospects, I think the stock remains attractive here.

To be sure, these businesses are cyclical. They're, of course, product cycles, macro crosscurrents. But the underlying drivers of the business remain healthy in our view, and I think we'll learn more at the company's GTC conference next month about the product roadmap, which helps lay the foundation for additional growth.

- And to that point because you would think that the idea is that, in that 10-year cycle that Jensen Huang was talking about, some of these costs should be expected to come down. How do you then gel that with what we might see in terms of the product roadmap as well as how they plan on executing, as you see, other companies coming in trying to really get on board, especially Intel here and really try and have some competition here.

DAN FLAX: I think competition in this market will remain fierce. The key for NVIDIA is to continually drive value for their customers in New areas. So as they bring out, for example, their new architecture for the data center likely to be introduced next month, the performance, the capabilities, the features are going to enable NVIDIA's customers to add value in their businesses.

Think about areas like drug discovery, fraud detection, climate change, really, the re-architecting of the Industrial landscape as you marry the physical and the digital. And so the growth and the use cases, I think, remain attractive. If we look at what some of the other companies are doing, I think AMD, for example, has an important role to play. CEO Lisa Su and her team are developing and continuing to broaden out their product roadmap in areas like the data center, GPU market. I think we're going to see good growth from there.

What we saw from Intel yesterday in terms of their foundry strategy, I think CEO Pat Gelsinger and their team are continuing this multiyear investment strategy. I think, as we saw with their Microsoft customer announcement, Intel has an important role over the next several years to play in the foundry market, and more broadly, certainly in the data Center AI market.