Nvidia shares jumped on Wednesday night after the world’s most valuable chip company reported quarterly revenues soared 265 per cent and projected even stronger sales thanks to a spending frenzy on artificial intelligence.
Revenues were $22.1 billion in the fourth quarter, far exceeding Wall Street’s expectations of $20.4 billion. Nvidia said it expected revenues for the current quarter to be $24 billion.
“Accelerated computing and generative AI have hit the tipping point,” said Nvidia founder and chief executive Jensen Huang. “Demand is surging worldwide across companies, industries and nations.”
The California-based company has a market valuation of about $1.7 billion and has eclipsed Google-parent Alphabet as the third most valuable listed company. After-hours, the shares experienced a gain of more than 8 per cent.
Nvidia has been the biggest single driver of a rally in the S&P 500 this year, driving about a quarter of the gains on the index. Its importance has become so great that some investors and analysts were anticipating Wednesday’s financial report as holding a market-wide risk, similar to the release of inflation data.
Nvidia said earnings per share had reached $4.93 in the fourth quarter, beating analysts’ expectations of $4.59, according to LSEG estimates.
Net income rose 770 per cent to $12.3bn compared to the same period in the previous year, which also exceeded analysts’ expectations of $10.4bn.
Nvidia, which was founded in 1993 as a provider of graphics cards for computer games, has become a proxy for AI demand as Big Tech companies such as Alphabet, Microsoft, Amazon and Meta have all increased their investment in AI computing. AI developers use its leading chips, such as the H100, to crunch data for large language models. Chatbots and other software that can learn, understand, and generate information in the form of text, images, and videos have been created as a result of this new industry known as generative AI.
Last year, the H100 chips became the hottest commodity in Silicon Valley thanks to the rapid success of OpenAI’s ChatGPT. Meta plans to increase its total stock of H100 chips to 350,000 in 2024, as announced by chief executive Mark Zuckerberg in January. Nvidia’s growth in the short term has been hindered by supply rather than demand.
“Nvidia has enabled a whole new computing paradigm called generative AI,” Huang said on a call with investors on Wednesday. He said its highly-prized chips were “essentially AI-generation factories” of a new industrial revolution.
“Every company is built on their proprietary business intelligence and, in the future, their proprietary generative AI,” he added. “Now every industry is on board.”
Big tech companies account for nearly 40% of Nvidia’s revenues, but its customers have diversified as more industries rush to invest in hardware for AI computing. Huang said industries including automotive, financial services and healthcare were now spending on its chips “at a multibillion-dollar level”. He mentioned that Nvidia’s customer base is expanding as sovereign nations, such as Japan, Canada, and France, use citizen data to create their own AI models.
In the fourth quarter, Nvidia’s data center division generated $18.4 billion of revenue, representing a 409 percent increase from the same period last year. Gaming chips generated $2.9 billion in sales.
Investors are paying close attention to whether Huang can maintain Nvidia’s stratospheric growth rates as its focus shifts to new products, such as its top-end AI chip, the B100, which is expected to start shipping later this year.
The company is also facing mounting competition, including a move by some customers to develop their own AI chips, as well as in China, which in the past accounted for a quarter of revenue. Nvidia had to limit the capabilities of its products to continue selling to the region due to new US export rules for the semiconductor industry.
Even with sales to China dropping to a “mid-single digit percentage” of overall revenue, according to the company, its latest results were welcomed by analysts. Saxo Bank head of equity strategy Peter Garnry said it was an “insane” result. “I have never seen anything like this in my career. However, it will be increasingly difficult for Nvidia to exceed expectations, and this could be the last insane quarter.”
