Shares of Nvidia (NASDAQ: NVDA) rose higher on Tuesday, rising as much as 5.6%. At 11:54 a.m. ET, the stock was still up 5.1%.
The catalyst that sent the chipmaker and artificial intelligence (AI) specialist soaring was news that another AI startup had raised billions of dollars, which is likely good news for Nvidia.
Heavy spending on AI
xAI, the AI startup founded by Elon Musk, announced Sunday that it has raised $6 billion in its latest funding round. The company said in a blog post that the influx of cash would be used “to bring xAI’s first products to market, build advanced infrastructure and accelerate research and development of future technologies.” In a subsequent post on X (formerly Twitter), Musk said the Series B funding round valued xAI at $18 billion.
Founded last July, the company is the maker of Grok, the generative AI chatbot that competes with OpenAI’s ChatGPT. Grok is available on X and is “modeled after the Hitchhiker’s guide to the Milky Wayso intended to answer almost everything and, much more difficult, even suggest what questions to ask!”
The main beneficiary
So what does all this have to do with Nvidia? It is a signal that there is still sufficient interest in further investments in AI. Investors are concerned that demand for AI could decline, but this illustrates that this is not the case.
Because xAI competes with ChatGPT, the underlying large language models will also require a lot of computing power to bring Grok up to standard. Since the company is not developing its own AI chips, the vast majority of processors will likely come from Nvidia – the market leader – which will directly boost the company’s revenue.
This follows Nvidia’s successful financial report and upcoming 10-for-1 stock split. For the fourth consecutive quarter, the company achieved triple-digit sales and profit increases and is aiming for more. This illustrates the continued demand for AI.
Furthermore, at about 38 times forward earnings, Nvidia shares are still fairly priced when viewed through the lens of the ongoing opportunity.
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Danny Vena has positions at Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Why Nvidia Stock Popped on Tuesday was originally published by The Motley Fool
