- Revenue jumps 265 per cent year-on-year
- Guidance increased by $2bn for the next quarter
Chip designer Nvidia (US:NVDA) beat earnings forecasts once again as tech giants rush to get hold of its graphics processing units (GPUs). These units are vital for building artificial intelligence (AI) processing capacity, and Nvidia is the market leader.
The company's revenue rose 265 per cent year on year to $22.1bn (£17.5bn) in the three months to January, well ahead of FactSet analyst consensus expectations of $20.4bn. This was driven by the data centre business, which grew 409 per cent and now makes up 83 per cent of total sales. Nvidia chief executive Jensen Huang said the company's recent success was a marker of "general-purpose computing... starting to run out of steam".
As a designer of chips, Nvidia has relatively few fixed costs and is benefiting from expanding margins as the business scales. Adjusted operating profit jumped 563 per cent to $14.7bn, which gives the company an operating margin of 67 per cent, up from 37 per cent a year ago. Nvidia is guiding for $24bn of revenue next quarter, a $2bn upgrade from previous expectations.
Strong results had been hinted at by Microsoft (US:MSFT), Amazon (US:AMZN), Alphabet (US:GOOG) and Meta (US:META), which all reiterated in recent earnings that they would be investing heavily in AI computing. However, the scale of the beat is impressive, and analysts are bullish that there is a lot more AI spending to come as companies race to incorporate generative AI into their businesses. The industry rush is driven by the need for greater computing power for large language and other AI models. Existing data centres are largely built for holding data, and so lack sufficient processing capacity. This is "general-purpose computing", in Huang's terms. "We now have a new type of data centre that is about AI generation, an AI generation factory," he added.
Wedbush Securities' Dan Ives believes there will be $1tn spent on AI over the coming decade. “Investors must see the forest through the trees to where this spending wave can head over the next three years and we believe 60-70 per cent of enterprises will ultimately head down the AI use case path,” he said.
The strength of Nvidia’s results lifted many stocks across the semiconductor industry. Nvidia’s manufacturer TSMC (TW:2330) is up 4 per cent in after-hours trading, while the lithography machine maker ASML (NL:ASML) is also up 4 per cent.
Nvidia shares themselves rose 8 per cent in after-hours trading. Share price gains over the past year amount to more than 200 per cent. However, because of its rapid earnings growth, the company still only trades on 30 times its forward earnings. It looks las though there is room to run yet.
