Nvidia (NVDA) is the next Big Tech stock on the docket to report earnings on Tuesday, November 21. The chipmaker is not stopping in its investments in AI infrastructure. Stifel Applied Technology Analyst Ruben Roy joins Yahoo Finance Live to take a closer look at global demand for AI semiconductor chips and who are the key frontrunners.

Roy explains Nvidia should be able to navigate export restrictions on chip shipments to China while meeting strong global demand, emphasizing that “there is quite a bit of demand."

Competition is increasing as Microsoft (MSFT) is in the midst of developing its own AI chips, but Nvidia still has the best tech for now, Roy argues. Roy states plainly that he doesn’t expect anything “meaningfully negative” for Nvidia in the near future despite development from Microsoft and other competitors.

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

Video Transcript

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- It's a big week for Nvidia as the AI-focused company gets set to report third quarter results after the bell tomorrow. Shares of the chip maker are up nearly 240% since the start of the year. Its blockbuster earnings report back in May also added to some of the upward momentum that we're seeing play out in the stock.

Well, our next guest, though, isn't expecting a slowdown any time soon, calling Nvidia best positioned at this point. We want to bring in Ruben Roy, he's Stifel applied technology analyst here for more. And Ruben, when you talk about the fact that Nvidia is best positioned, what do you see that upside potential looking like then as we look ahead to 2024?

RUBEN ROY: Well, the rest of the-- Thanks for having me. The rest of '24, we're looking for a bit of beat and raise again. So we saw that in May, as you pointed out, and then again with the July quarter when Nvidia reported in August. And we haven't seen any slowdown to the momentum that Nvidia is seeing on orders for their high end chips called the H100, for large language model, training networks. And we expect that to continue into year end and into next year.

There's been some supply constraints that have impacted, in our view, some of the sales that Nvidia could have had this year. And we expect those supply constraints to start to ease as we get into the end of the year. And so you put all that together and we think we have several quarters ahead at a minimum where we have quite robust results coming up.

- And so additionally here, when you think about some of that AI demand, where do you expect it to roll in from even more so internationally given some of the curbs that have been put in place, Nvidia, other chip makers have had to make sure that they navigate around successfully?

RUBEN ROY: Yeah, thanks, Brad. That's going to be a focus point of course on the call. So increased export restrictions and coming down to even some of the chips that some analysts and investors did not expect the US government to put restrictions on. Since then, there's been some chatter that Nvidia has come up with, a number of SKUs that are again underneath the specifications that the government is worried about. We'll see how that plays out.

At a certain point, I think there's a spirit of the law type of case to be made for hey, we shouldn't be shipping some types of technology to some countries. So we'll see how Nvidia comments on those questions.

I would say, though, in terms of demand, the company did file, post the restriction announcement and said that they're not expecting any near-term impacts to their financials. And our checks out in the channel would suggest that that is the case, we think, as I said, that there's quite a bit of demand globally, ex-China.

So certainly in the US, the big cloud service providers. You folks are talking about Microsoft, and we think that's going to continue to be a very big opportunity for NVIDIA going forward. But even outside of the US in areas like Europe, Japan, South Korea, you name it, there's a lot going on with AI. And like you said as well, Nvidia remains, in our view, the best way to position for that growth.

- Ruben, you mentioned Microsoft there. And more specifically, what we've seen play out over the last 72 hours now that Sam Altman is on board here with Microsoft, there were reports of course, that he was looking to raise funding here for a new chip venture that would rival Nvidia. How do you see that competition then stacking up with Altman now at Microsoft between Microsoft and Nvidia?

RUBEN ROY: Yeah, Microsoft last week at Ignite actually announced two of their own semiconductor devices that they've been working on for quite a while. And I think we're going to see a lot of that going forward. No one wants to be beholden to one vendor. And so over the next several years, I think you will see increasing competition.

AMD, in our view, is the second best to Nvidia from a hardware perspective, having their MI series of GPUs launching at the end of this year and into next year. And if you look at that company, they're looking for around $2 million in MI 300 related sales next year. That's a pretty small percentage of overall AI GPU revenue. We're estimating somewhere around $60 billion for data center revenues for Nvidia next year.

So yes, I think there will be competition and Sam Altman potentially going to Microsoft and leading the charge to try to come up with some lower cost chips or what have you. I think we'll see that happen. But I'm not expecting that to be meaningfully negative in terms of competition anytime soon.

I would also point out that Google is on their fifth generation TPU, which is an AI specific chip that they've been working on. And even there, Google is a very big customer of Nvidia. So I think that this is a very big market. And Nvidia is again the best technology for the market at this point.

- Is there an acquisition target out there for Nvidia that is perhaps synonymous with an OpenAI even if they, Nvidia, does have their own partnerships to advance their generative AI ambitions here in the future?

RUBEN ROY: Yeah, it's a great question, Brad. So I think one of the other announcements that came out of Ignite that we thought was very interesting was the so-called AI foundry that Nvidia is doing with Microsoft. And that's software. And that's embedding software layers. Nvidia's models for AI, kind of their operating system which is called CUDA and kind of entrenching themselves into the AI offerings that are coming not just from Microsoft but enterprise customers. So now we're starting to see the broadening and some Roi potential for customers. SAP was named Amdocs and others.

And so I think from a software perspective, that's the next area potentially for Nvidia to expand into. They've got a cloud DGX offering where they're selling capacity, a GPU capacity. And moving forward, they can, in our view, start to really ramp up revenue if they're able to get further into the software ecosystem. So that's where I would be looking for M&A and certainly would make sense from a longer term perspective.

- Ruben, always a pleasure to get some of your insights here. And thanks for kicking off the trading week here with us. Ruben Roy, Stifel applied technology analyst. You've got a busy week ahead and then holiday as well. So all the best.

RUBEN ROY: Of thanksgiving, thanks.

- Thanksgiving. Thanks.