As investors jumped on the artificial intelligence (AI) bandwagon in earnest this year, arguably the biggest beneficiary has been Nvidia, the Silicon Valley-based microprocessing giant with a growing presence in the life sciences.

Nvidia shares this year have nearly tripled, rocketing 180% between January 3 and Tuesday of this week from $143.15 to $401.11 a share. Nvidia shares spiked 24% on May 26 from $305.38 to $379.80, the first trading day after the company offered rosy investor guidance for the current second quarter of its current 2024 fiscal year, projecting sales of about $11 billion “plus or minus 2%”—53% above what a consensus of analysts had expected.

The surge sent Nvidia’s market cap–the share price times the number of outstanding shares of a public company—soaring from $352.15 billion to cracking the $1 trillion mark.

This week has been more stable. Investors began taking profits from AI investments on Wednesday, touching off a stock selloff that sent Nvidia shares sliding 6%, to $378.34, the biggest one-day decline for the company’s stock since January 19. By Thursday, shares rebounded 5% to $397.70.

The up-and-down has not dampened investor enthusiasm for Nvidia, whose performance has earned the company 49 “buy” recommendations from analysts. That’s more than all but four companies whose stocks trade on the Nasdaq 100, which tracks 100 of the largest non-financial companies listed on the Nasdaq stock exchange (and which has risen about 30% so far this year.

One factor in Nvidia’s decline Wednesday was a cautious research note issued that day by Citigroup analyst Atif Malik. He reiterated the firm’s “Buy” rating on Nvidia and 12-month price target of $420 a share—but cited data from Mercury Research showing that Nvidia’s market share of graphics processing unit (GPU) sales measured by revenue had slipped during the first quarter in categories that included data centers and desktop.

“Right place, right time”

Among analysts more bullish on Nvidia is Tristan Gerra, a senior research analyst with Baird, which on May 25 upgraded the company’s shares from “Neutral” to “Outperform.” Gerra wrote in a research note that Nvidia was “at the right place at the right time with performance leading products.”

Gerra cited Nvidia’s H100 Tensor Core GPU, the company’s next-generation, highest-performing data center graphics processing unit (GPU), designed to accelerate AI training and inference, high-performance computing (HPC), and data analytics applications in cloud data centers, servers, systems at the edge, and workstations.

“H100 offers leading performance so the choice for AI is clear,” Gerra declared. “This is only the beginning though as Nvidia is uniquely positioned as a full stack data center centric supplier, including smartNICs [smart network interface cards or NICs], connectivity and software solutions.”

Last week Nvidia said it would integrate its Nvidia AI Enterprise software into Microsoft’s Azure Machine Learning platform and make its Nvidia Omniverse Cloud platform-as-a-service available on Microsoft Azure, both targeting enterprise AI initiatives. And in November, Nvidia announced a multi-year collaboration with Microsoft to build one of the most powerful AI supercomputers in the world, powered by Microsoft Azure’s advanced supercomputing infrastructure combined with NVIDIA GPUs, networking and full stack of AI software.

“Nvidia’s new cloud initiative represents a key enabler for GPU-based acceleration and AI proliferation for the medium term, in our view,” Gerra wrote.

He also observed that Nvidia had “no meaningful competitive threat near term. One potential rival, Google, has developed a next-gen Tensor processing unit (TPU) that according to Gerra “could be competitive but without likely expanding existing footprint, while other vertical integration initiatives are behind.”

“We see nobody with a full stack solution remotely matching Nvidia’s capabilities,” Gerra concluded.

Beyond Gaming

During a commencement address on Dunday, Nvidia CEO Jensen Huang made it clear that his company will continue advancing beyond gaming, into AI.

“Agile companies will take advantage of AI and boost their position. Companies less so will perish,” the CEO told graduating students at the National Taiwan University in Taipei, according to a Bloomberg News report.

Huang said that like other emerging technologies in the past, AI will accelerate the performance of workers across industries, create new jobs that never existed, and make some others obsolete: “While some worry that AI may take their jobs, someone who’s expert with AI will.”

Nvidia’s gaming revenue during fiscal ’24 Q1 dropped 38% year-over-year to $2.24 billion, though the company hastened to add that the number was up 22% from the previous quarter.

Headquartered in Santa Clara, CA, Nvidia revolutionized gaming by inventing the graphics processing unit (GPU) more than two decades ago. By 2021, as GEN reported, Nvidia doubled down on expanding its presence in AI-based drug discovery by announcing a trio of partnerships with Schrödinger to further expand the speed and accuracy of its computational platform; with AstraZeneca to develop a transformer-based generative AI model for chemical structures; and with the University of Florida (UF)’s academic health center UF Health to apply what the partners said was the largest clinical language model developed to date for drug discovery as well as clinical medicine.

This year, at the GTC in March, Huang and Nvidia announced another series of drug discovery, diagnostic, and genomics collaborations, including:

  • BioNeMo™, a generative AI cloud-based service designed to enable faster discovery and design of drugs. Among early users is Amgen, which has used BioNeMo to reduce from 3 months to 4 weeks the time needed to pretrain large language models for molecular biology on Amgen’s proprietary data,
  • Tokyo-1, in which Nvidia and Mitsui & Co., are partnering to develop Japan’s first generative AI supercomputer for that nation’s pharma industry. The supercomputer’s features include high-resolution molecular dynamics simulations and generative AI models for drug discovery.
  • Clara, an AI-based platform used by more than 100 healthcare enterprises worldwide for purposes that include detecting diseases earlier from medical images, delivering critical insights to care teams, and accelerating drug discovery workflows. Through Clara, Nvidia said, researchers from Evozyne used BioNeMo for AI protein identification, to engineer new proteins with enhanced functionality.

ARK defends selloff

Nvidia’s booming stock price has come nearly six months since ARK Innovation ETF (ARKK), the flagship electronic transfer fund of ARK Investment Management overseen by its Chief Investment Officer and Portfolio Manager Catherine D. (Cathie) Wood, sold off its 800,000 Nvidia shares in January—thus missing practically all of the company’s stock surge this year.

ARK acted after the price of those Nvidia shares tumbled 25% from $182 a share when the firm snapped them up in August 2022, to $137 a share.

On Twitter and in an interview with Bloomberg TV, Wood defended ARK’s selloff of Nvidia shares while heaping some praise on the company: “Since 2014, @ARKInvest has believed that Nvidia saw the AI future before most other chip companies, and now we believe it will continue to power the AI age,” Wood tweeted.

But with its stock price being 25x its expected revenue for this year, Wood continued, “$NVDA is priced ahead of the curve.”

Wood explained in a follow-up tweet: “In 2014, most investors considered $NVDA, priced at ~$5, simply a PC gaming chip stock.” “In contrast, @ARKInvest ’s first principles research pointed to #Nvidia as the premier equity play on #AI. Now up ~80-fold, investors seem to think NVDA is the only AI play. It is not!”

In a Bloomberg TV interview, Wood said: “As far as Nvidia goes, there are a few reasons we take some pause.”

One of those reasons, she said, was concerns about the boom-and-bust nature of chip makers, reflected sometimes in “shortages, shortages, shortages about GPUs or anything,” in which case, “I begin to think about the cyclicality of a group.”

Wood also cited the potential for Nvidia to face growing competition in producing the chips needed to power AI computing. She specifically mentioned Tesla, Facebook parent company Meta Platforms, and Google parent company Alphabet, all of which are working to develop chips.

She added that while ARK’s flagship ETF sold off Nvidia shares, several more specialized funds retain holdings in the company, including the ARK Next Generation Internet ETF (ARKW) and the ARK Fintech Innovation ETF (ARKF).

Looking ahead, Wood said, the next phase of the AI stock boom will lift several software developers.

“We are looking to the software providers who are actually right now where Nvidia was when we first bought it,” Wood said, adding that while she still expects Nvidia shares to keep rising, Ark is focused instead “onto the next thing.”

Leaders & laggards

  • Illumina (ILMN) shares inched up 3% on Friday, from $199.09 to $204.59 as of 11:30 a.m. ET, after the company announced the election of two new board members–Stephen P. MacMillan, the CEO of Hologic, and Scott B. Ullem, CFO of Edwards Lifesciences. MacMillan was name chair, succeeding John W. Thompson, an ally of CEO Francis deSouza who last week was ousted by shareholders in favor of Andrew J. Teno, a portfolio manager at Carl C. Icahn’s investment management firm Icahn Capital. Teno was one of three allies nominated to Illumina’s board by the activist investor, who launched a proxy campaign in March to change the direction of Illumina and its board.
  • Novan (NOVN) shares skidded 18% on Thursday, from $1.36 to $1.12, a day after the company announced a restructuring that will eliminate about half of its workforce, 39 employees, primarily field sales representatives. Novan said it will refocus its efforts on developing berdazimer gel, 10.3% (SB206) as a treatment for molluscum contagiosum, an infection caused by a poxvirus. Berdazimer is under FDA review with a target decision date of January 5, 2024. The company also said it continues to explore strategic alternatives, with a focus on its commercial product portfolio and a sale or out-license of one or more of its commercial products.
  • Paratek Pharmaceuticals (PRTK) shares rose 22% on Thursday, from $1.53 to $1.86, after Betaville, a website reporting on business deals and dealmakers, reported that Gurnet Point Capital was one of several private equity firms interested in acquiring the company. Paratek said in March that another PE firm, Highland Capital Management, had bought $1.3 million in company shares. Paratek develops therapies for life-threatening diseases or other public health threats for civilian, government, and military use. The company finished Q1 with a net loss of $20.143 million vs. a $17.91 million net loss a year earlier, though revenues rose 26% year-over-year from $24.861 million to $31.236 million.
  • T2 Biosystems (TTOO) shares jumped 42% on Tuesday, from 9.5 cents to 13.5 cents, after the company announced that its distributor had secured a multi-year contract for T2Dx® Instruments and sepsis test panels that are expected to be deployed in selected hospitals across Poland. The initial order included seven T2Dx Instruments, valued at more than $450,000, with the potential for nine additional instruments to be sold and deployed into an increased number of Polish hospitals during the second half of 2023. T2 said the contract marked the second largest sale of sepsis-driven T2Dx instruments in its history.
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