Nvidia's Midas touch has turned this Indian stock to gold

The jury is still out on whether artificial intelligence (AI) will achieve world domination. But what is as clear as day is its dominance in the stock market. The AI euphoria has investors giddy, fueling the rally in US tech benchmark Nasdaq. Sitting at the top of this run is Nvidia, which has soared nearly 200 per cent in the last year, adding $2 trillion to its market cap, and even dethroning Microsoft at one point to become the world's most valued company.

An Indian company shares a somewhat similar fate. Netweb Technologies ' earnings and stock price have run up multifold recently, thanks to forging manufacturing partnerships with major chipset providers including Nvidia, Intel, and AMD. To understand how this growth came about, we need to first know the company's business and the industry's nature.

Netweb's business

Netweb Technologies is a fully-integrated product manufacturer for data centre computing solutions. It designs, manufactures, and provides software for high-performance computing hardware used in data centres.

What are data centres? These are facilities that house large numbers of computer servers and related equipment like specialised chipsets for storing and processing huge volumes of data used in AI applications. The demand for data centre solutions to handle AI workloads across sectors and businesses has shot up rapidly. Nvidia has arguably been the largest beneficiary of this trend as its graphic processing units (GPUs), which are specialised chipsets, are used in data centres for their powerful computing capabilities.

India's AI play

In India, Netweb Technologies is the first company that is capitalising on the increasing demand for data centres and related solutions. Here's how it is doing it:

• The company holds superior expertise from its 20 years of experience in high-performance computing, which helped it develop India's fourth-fastest supercomputer for ISRO.
  
• The company is an elite partner (tier-1) for Nvidia, meaning it gets early access to the chip giant's GPUs ahead of the market, which it integrates in its computing and data centre solutions.
  
• The data centre boom is expected to solidify Nvidia's position in the high-performance computing market. As a tier-1 partner, Netweb too will immensely benefit from Nvidia's leadership, as its growth trajectory is aligned with that of the latter.
  
• Even if Nvidia's leadership is threatened, it won't significantly impact Netweb Technologies given it has already established relationships with Nvidia's competitors-Intel and AMD.

Before rushing in...

Given that AI is all the rage in the current market, any related business is quick to draw investors in. But even with buoyant prospects, Netweb is fraught with some risks that need to be watched out:

• A pricey bet: In line with Nvidia's meteoric rise, Netweb's share has also been on a tear, rallying nearly 3 times in the past year, ballooning its P/E multiple to 148! The company's net profit growth of 25 times between FY19 and FY24 has supported the rally, but the stock still offers limited margin of safety.
  
• Threat from competitors: Being a tier-1 partner only gives Netweb access to Nvidia's technology, but this doesn't ensure any exclusivity. Since there is no barrier to becoming Nvidia's partner, there are also other domestic companies in the fray like Esconet Technologies. Besides, Netweb Technologies is a relatively new player in the high-performance computing sector. Incumbent giants like Gigabyte, Supermicro, Dell and Asus have better brand presence globally, with stronger supply and service infrastructure than Netweb's.

Also read: Eight Indian funds profiting from Nvidia's phenomenal growth story