The boom in artificial intelligence is keeping the chip company NVIDIA’s business running at full speed.
In the last quarter, sales of a good $18 billion were three times as high as the year before. Analysts had expected an average of $2 billion less in sales.
Profits shot up from $680 million a year ago to $9.2 billion (8.4 billion euros), as NVIDIA announced after the US stock market closed on Tuesday. Earnings per share improved from $0.580 in the same period last year to $4.02 in the current quarter, exceeding analyst expectations. Experts had previously predicted an EPS value of $3.36. The NVIDIA technologies, originally developed for graphics cards, have long been proven for computing work when training applications with artificial intelligence.
For the fourth quarter, which began at the end of October, the group forecast sales of around $20 billion – also over $2 billion more than market expectations. NVIDIA boss Jensen Huang emphasized in a conference call with analysts that he sees the change brought about by artificial intelligence as just beginning. Above all, there will be the introduction of so-called generative AI across the board, such as chatbots modeled on ChatGPT, he predicted.
At the same time, NVIDIA admitted that business in China would decline “significantly” under the pressure of expanded delivery restrictions. Chinese companies have been among large buyers of NVIDIA’s AI chips, and the business there recently brought in 20 to 25 percent of data center sales.
A few weeks ago, the US government extended the restrictions on exports to China to include the NVIDIA technology previously sold there. NVIDIA emphasized that business in other countries will more than offset the decline in China. NVIDIA is working on configurations and solutions that could also be sold to China according to current rules, said CFO Colette Kress. But that will take a few months and will no longer be noticeable in the current quarter.
NVIDIA on course for a record after highly praised pre-market figures
Numerous positive analyst comments after another surprisingly strong quarterly report from the AI cult group NVIDIA gave its shares a boost in pre-market US trading on Wednesday. This is despite the US chipmaker’s warning that business in China will decline “significantly” due to expanded delivery restrictions by the US government.
The evening before and also this morning in trading on the Tradegate platform, however, this was literally the “fly in the ointment” that was bothering market players. NVIDIA has fueled the boom in artificial intelligence (AI) because the company is considered a pioneer in the development of AI chips. Since then, a real hype has broken out on the stock market.
In an initial reaction to the numbers on the NASDAQ, NVIDIA shares lost around four percent after trading. In regular business, after initial gains, the price fell by 4.24 percent to $478.14. In initial reactions, they had temporarily lost more than 6 percent in after-hours US trading on Tuesday evening.
So far this year, the stock remains by far the best-performing stock in the Nasdaq 100 index. So far in 2023 it has increased by just over 240 percent. In second place are the papers of Instagram and Facebook parent Meta (Meta Platforms (ex Facebook)) with a plus of 180 percent.
Analysts were generally positive about the fact that NVIDIA clearly exceeded the already high market expectations with its third fiscal quarter. “Once again, the chip company has delivered,” summarized Goldman analyst Toshiya Hari, also emphasizing the good predictability of the data center business. And Harlan Sur from JPMorgan added: With its announced increase in sales in the fourth quarter, which began at the end of October, the graphics processor developer is also well above the average analyst estimate.
The fact that enthusiasm about NVIDIA’s quarterly report among investors was initially limited was due to the declining Chinese business, explained chief market analyst Jochen Stanzl from CMC Markets. “This is the famous fly in the ointment that separated yesterday’s numbers from perfection.” After all: Chinese companies have so far been major buyers of NVIDIA’s AI chips. The business there recently brought in 20 to 25 percent of data center sales.
However, since demand for data center products has increased massively despite the negative effects of US export controls, as Harlan Sur emphasized, he and the experts from Goldman Sachs, UBS and Barclays remain positive for NVIDIA. “We see no slowing demand and remain confident that data center revenues are heading to more than $25 billion per quarter,” wrote Blayne Curtis of British bank Barclays. According to him, this division will continue to drive NVIDIA’s growth despite the restrictions in China.
Accordingly, the analysts continue to consider the share to be an attractive investment despite its sharp increase in valuation in 2023. Timothy Arcuri from the Swiss bank UBS writes: “All in all, we think it is still too early to exit. Also because the company has become the de facto global platform for one of the potentially most transformative technologies of our lifetime (AI). becomes.”
According to CMC market analyst Konstantin Oldenburger, the high expectations are not a problem, at least so far. However, the enormous price gain of the share increases the pressure to meet or even exceed the high expectations. But: “Of the last 20 quarterly results, a total of 19 were above analysts’ expectations. This impressive series continued yesterday evening after the stock market closed,” as the AI chip expert reported “three times more sales and twelve times more profits” compared to that corresponding quarter of the previous year.
Goldman analyst Toshiya Hari also made cross-references to other companies in the industry after the quarterly report. He sees positive effects for the British chip developer Arm Holdings. NVIDIA’s stated expectation that its Arm architecture-based Grace CPU (main processor for data centers) will be a multibillion-dollar product encourages it to use Arm technology in a broader range of end markets and applications in the medium to long term will move in. However, Microsoft also recently presented its first batch of its own AI chips, he added.
The Goldman expert sees light and shadow for Advanced Micro Devices (AMD). The strength in spending on generative AI can be interpreted positively for the processor specialist’s business. However, he also sees challenges facing AMD due to, among other things, NVIDIA’s pace of innovation and increased competition in the CPU sector.
Based on the NVIDIA report, Hari sees moderately negative effects for Intel. The continued prioritization of data center capital expenditures in favor of accelerated data processing as well as the emergence of Arm-based CPUs are likely to weigh on this chip maker’s stock and weaken its earnings power.
Before the market, Arm and AMD were up 1.1 percent each, Microsoft increased by 0.6 percent and Intel remained unchanged in percentage terms. In this country, the shares of the chip manufacturer Infineon in the DAX rose moderately by 0.3 percent on Wednesday.
SANTA CLARA / FRANKFURT (dpa-AFX) /
NEW YORK / ZURICH (dpa-AFX Broker)