Nvidia rises after company claims AI has reached ‘tipping point’: report | World News – Business standard
Nvidia (Photo: Bloomberg)
Nvidia Corp. rose in early trading after another high-profile sales forecast, adding new impetus to a stock rally that already made it the world’s most valuable chipmaker.
Sales in the current period will be about $24 billion, the company said in a statement on Wednesday. Analysts on average had forecast $21.9 billion. Fourth-quarter results also exceeded Wall Street expectations.
The outlook perpetuates a series of Nvidia-busting expectations, thanks to insatiable demand for its artificial intelligence accelerators — highly regarded chips that process data for AI models. The technology has contributed to a proliferation of chatbots and other generative AI services, which can create text and images based on simple prompts.
“Accelerated computing and generative AI have reached the tipping point,” CEO Jensen Huang said in the statement. “Demand is increasing across companies, industries and countries worldwide.”
Shares rose about 13% in premarket trading Thursday after the announcement. They previously closed at $674.72 in New York, putting them up 36% this year.
Nvidia’s market capitalization has risen by more than $400 billion this year, bringing its valuation to $1.7 trillion, as investors bet the company will remain the main beneficiary of an AI computing boom.
That made Wednesday’s report a highly anticipated event for both Wall Street and the tech world. And the numbers — along with Huang’s optimistic tone — renewed confidence that spending will remain strong.
The shares of Advanced Micro Devices Inc., Broadcom Inc. and Marvell Technology Inc. — three other chipmakers expected to benefit from AI growth — also rose in late trading.
“The entire market is watching this report and expectations are high,” Wolfe Research analyst Chris Caso said in a note. The guidance was strong enough to “demonstrate sustained momentum, while also leaving room for sustained upside throughout the second half.”
New cycle
During a conference call with analysts, Huang said demand for Nvidia’s latest products will continue to outpace supply for the rest of the year. While supply is growing, demand shows no signs of slowing, he said.
“Generative AI has created a whole new investment cycle,” says Huang. That will lead to a doubling of the number of installed data centers in the world over the next five years and “represent an annual market opportunity worth hundreds of billions,” he said.
Nvidia, co-founded by Huang in 1993, started out as a supplier of graphics cards for computer gamers. Its profile has grown dramatically over the past two years, as the technology proved adept at handling heavy AI workloads. The company’s H100 accelerators have become legendary in the tech world, with customers scrambling to get their hands on as many as possible.
Companies like Amazon.com Inc., Meta Platforms Inc., Microsoft Corp. and Google from Alphabet Inc. are Nvidia’s largest customers, accounting for nearly 40% of revenue, as they rush to invest in AI computing hardware.
In its fiscal fourth quarter, which ended Jan. 28, Nvidia’s revenue more than tripled to $22.1 billion. Earnings excluding certain items amounted to $5.16 per share. Analysts had forecast revenue of about $20.4 billion and earnings of $4.60 per share. This underlines the magnitude of its recent growth streak: in 2021, Nvidia didn’t generate that much revenue in an entire year.
Nvidia’s data center division, now by far its largest revenue generator, generated $18.4 billion in revenue, up 409% from the same period a year earlier. Gaming chips generated $2.87 billion in sales.
Nvidia is now working to spread its AI technology beyond the major data center companies. Huang, 61, has traveled the world arguing that governments and companies need their own AI systems – both to protect their data and to gain a competitive advantage.
Nvidia announced a deal with Cisco Systems Inc. earlier this month, giving it a new distribution channel. As part of that deal, Cisco, the world’s largest supplier of networking equipment, will help sell complete AI systems to companies.
But Nvidia faces risks, including increasing competition and pressure from some customers to develop their own AI chips.
AMD recently started selling a line of accelerators called the MI300. It expects to generate $3.5 billion in sales from that product this year, up from a previous projection of $2 billion. However, Nvidia is not standing still. Analysts expect the company to unveil more powerful accelerators soon.
Nvidia has also faced new export rules for chips going to China, its largest market for semiconductors. The company has scaled back the capabilities of its products to continue selling to that region, which in the past accounted for a quarter of its sales. Three months ago, Chief Financial Officer Colette Kress told analysts that the company’s expectations would have been higher if not for China’s rules.
In terms of data center revenue, China accounted for a single-digit percentage in the fourth quarter. “We expect growth to remain at similar levels in the first quarter,” Kress said on Wednesday.
The company has started sending samples of new chips that meet the restrictions to Chinese customers, Huang said. That should help business get going again.
“We are going to do our best to compete in that market and succeed,” Huang said.
First print: February 23, 2024 | 12:25 pm IST