Nvidia’s shares surged on Wednesday night, after the company announced a 265 percent increase in quarterly revenues and forecasted even higher sales due to an artificial intelligence spending frenzy.
The fourth quarter revenues were $22.1bn, which was far more than Wall Street’s expectations of $20.4bn. Nvidia stated that it expects revenues to be $24 billion for the current quarter.
Nvidia’s founder and CEO Jensen Huang said that “accelerated computing and generative AI has reached the tipping point.” The demand is surging across industries, companies and nations.
California-based company, with a valuation of $1.7tn, has overtaken Alphabet (parent company of Google) as the third-most valuable publicly listed company. After-hours, the shares rose by more than 8 percent.
Nvidia is the single biggest driver of the S&P 500 rally this year. It has accounted for about a quarter. It’s significance has grown to such an extent that investors and analysts viewed Wednesday’s financial statement as a similar risk for the market as the release of inflation statistics.
Nvidia reported earnings per share of $4.93 for the fourth quarter. This was higher than analysts’ expectations, which were $4.59 according to LSEG estimates.
Analysts’ estimates of $10.40bn were also exceeded by 770 percent.
Nvidia was founded in 1993 to provide graphics cards for computer gaming. Since then, it has grown into a proxy of AI demand, as companies like Alphabet and Microsoft have increased their investments in AI computing. Its leading chips such as the H100 have become industry standards for AI developers who crunch data to create large language models. The emergence of generative AI has led to the emergence of chatbots, and other software, which can understand, learn and generate text, images, and videos.
OpenAI’s ChatGPT, which was a huge success in Silicon Valley, helped make the H100 chip the most sought-after commodity last year. Mark Zuckerberg, Meta’s chief executive officer, said in January that Meta planned to increase its stock of H100 chip to 350,000 by 2024. Nvidia’s short-term growth is being held back by supply rather than demand.
Huang told investors in a Wednesday call that “Nvidia’s generative AI has enabled a new computing paradigm.” He said that its high-priced chips were “essentially AI generation factories” for a new industrial age.
He added that “every company is built upon their proprietary business intelligence, and in the future their proprietary generative artificial intelligence.” “Now, every industry has jumped on board.”
Nvidia’s revenues are dominated by Big Tech companies, which account for almost 40% of its revenue. However, as more industries invest in hardware to support AI computing, the customer base has diversified. Huang stated that industries such as automotive, financial services, and healthcare are now spending “multibillions of dollars” on Nvidia chips. Huang said that sovereign nations such as Japan, Canada and France are becoming more Nvidia clients because they use citizen data to build their own AI models.
Nvidia’s data center division is the company’s largest sales driver, with revenues of $18,4bn in the fourth quarter up by 409 percent from the same time last year. Gaming chips generated $2.9bn in sales.
Investors are watching Huang closely to see if he can continue Nvidia’s astronomical growth rates, as the company shifts its focus to new products such as its high-end AI chip B100 which will start shipping in late 2018.
In addition, the company faces increasing competition from customers who are developing their own AI chips. This is in addition to China, where in the past, a quarter or more of its revenue was generated. Nvidia had to reduce the capabilities of their products to comply with new US export regulations for the semiconductor industry.
Analysts praised the latest results of the company despite sales to China falling to “a mid-single-digit percentage” (according to them) of its overall revenue. Peter Garnry, head of equity strategy at Saxo Bank, called it an “insane result”. I have never seen anything so crazy in my entire career. Nvidia will find it increasingly difficult to meet expectations and this quarter could be the last.