RTX 4090 chips, which are designed especially for computer gaming, are shown being held by Nvidia Corp’s CEO Jensen Huang in this undated handout photo that was provided on September 20, 2022.
During extended trading on Wednesday, Nvidia shares rose more than 8% to a record high after the company reported higher revenue and net income than analysts expected, although both categories have declined year-over-year. To give you a sense of how the chipmaker performed against Refinitiv’s consensus expectations for the quarter that ended in January, here is what they did:
- Earnings per share (EPS): $0.88, adjusted, compared to expectations of $0.81
- Revenue: $6.05 billion, compared to expectations of $6.00 billion
According to GAAP, Nvidia reported a net income per share of $0.57. The company is expecting $6.5 billion in sales in its first quarter, which is higher than the $6.33 billion Wall Street had expected.
In spite of the fact that both revenue and earnings were down from last year’s $1.32 per share and $7.64 billion in sales, investors are increasingly looking at Nvidia as one of the best chip stocks to endure a downturn in the economy that will negatively impact PCs and semiconductors.
The data center business at Nvidia, which includes chips for artificial intelligence, continued to grow during the second quarter, suggesting that it could continue to benefit heavily from artificial intelligence software like ChatGPT and Microsoft’s AI chatbot for Bing. In order to train and run machine learning software, Nvidia’s graphics processors are well suited.
Prior to Wednesday’s earnings report, the stock had been up about 45% in 2023.
It’s important to note that the recent jump in interest in AI over ChatGPT proves how much more profit chip makers can make with software, which is being integrated into major cloud providers’ offerings.
The shares of Nvidia Corp. surged in after-hours trading Wednesday after the graphics-chip specialist disclosed it had mostly resolved inventory issues and was looking forward to opportunities in artificial intelligence.
Jensen Huang, the founder and CEO of Nvidia (NVDA), announced during a conference call on Wednesday afternoon that his company has now partnered with several cloud computing providers to make Nvidia’s AI software available to customers through their cloud computing platforms, such as Oracle Corp.’s (ORCL), Microsoft Corp.’s (MSFT), and Alphabet Inc.’s (GOOGL)(GOOGL) services, with “others on the way”. In his opinion, the browser-based DGX Cloud AI supercomputer service will accelerate adoption of higher-margin software offerings focused on data-center applications at a time when AI interest is exploding, allowing higher-margin software offerings to be offered at a time of increased demand.
There has been a huge increase in activity around the AI infrastructure that we have built … over the past 60 days,” Huang said.
Artificial intelligence has been riding a wave of hype this year, as a new chatbot called ChatGPT has reignited interest in the technology, and has sparked a new wave of excitement. OpenAI, the startup behind ChatGPT, has announced a new round of funding by Microsoft Corp. (MSFT), which will be used to launch new services using the technology it developed.
This new cloud-based offering from Nvidia goes beyond just providing the higher level of computation capabilities that Nvidia gear can offer, and will also include access to the Nvidia software suite as well. During the earnings call, Nvidia’s Chief Financial Officer Colette Kress stated that the company’s software brings in “hundreds of millions” of dollars in revenue and that it is “getting stronger all the time.”
As of right now, Nvidia does not break out software revenue separately, instead including it in its segments like data center which it reports as a whole. However, it is likely that the company will be able to break out software contributions at some point in the future as the software division of the company grows, Kress told MarketWatch in an interview.
It will be a driver as we scale, as we advance, as far as software standalone is concerned,” Kress told MarketWatch. But, currently, it is likely that just the number of products and offerings that we have in the field of data centers will be the biggest driver in the mix of products that we offer.”
With its AI focus and forecasts, Nvidia has been able to turn the page from inventory issues that have dogged the company for the past two quarters, which resulted in large declines in sales and revenue in the fiscal fourth quarter. In addition, Kress said that data-center sales and year-over-year growth in the data center industry are expected to accelerate beyond Q1 of this year.
Nvidia forecasted a first-quarter revenue of $6.37 billion to $6.63 billion, while analysts were predicting earnings of 85 cents a share on a revenue of $6.31 billion for the first quarter, according to Nvidia. As a result of the company’s inventory drawdown, adjusted gross margins for the fourth quarter decreased from 67% a year ago, but increased sequentially from 56.1% during the fourth quarter of last year. As a result, it is expected that Nvidia will achieve gross margins of 66% to 67% for the first quarter of the year.
As a result of the fourth quarter results, Nvidia reported a net income of $1.41 billion, or 57 cents per share, as compared to $3 billion, or $1.18 per share, in the same quarter a year ago. Based on adjusted earnings, which do not include stock-based compensation expenses and other items, the company earned 88 cents a share, compared with $1.32 a share in the year-ago period. In the third quarter of 2018, revenue fell to $6.05 billion from $7.64 billion in the previous quarter.
As reported by FactSet, analysts surveyed by the company had forecast earnings of 81 cents per share on revenues of $6.02 billion. After hours, shares of the company increased by about 9% to $207.52, following a 0.5% gain in the regular session.
The Nvidia earnings were overshadowed by Microsoft’s, ChatGPT’s, OpenAI’s, and a 10-year gaming partnership between the two companies.
A year ago, data-center sales grew 11% to $3.62 billion, compared to last year’s $3.85 billion. However, analysts expected sales to rise 11% to $3.62 billion. The data-center business of Nvidia has been a major contributor to the stock price in recent years. However, the recent slowdown in cloud computing has raised concerns about the company’s near-term growth, while advances in artificial intelligence have boosted prospects for the company.
“Our research indicates that there will be a 3% decline in spending from the top seven cloud-service providers, in aggregate, in 2023. This decline follows growth of around 33% in 2022 and 26% growth in 2021,” analysts from Stifel Merrill Lynch wrote in a preview of the report this week. Despite the fact that we expect AI-focused investments to remain a priority and escalate as competition heats up in the data-center space in 2023, we should remain wary of expectations for a significant slowdown in overall capex spending in the sector.
Based on FactSet, the gaming sales for the first quarter of 2019 reached $1.83 billion, while analysts on average expected $1.59 billion, according to the company.
Nvidia’s gaming business may be given a boost by a recent deal with Microsoft, which is looking to close a $69 billion deal to acquire Activision Blizzard Inc. (ATVI), but the company has been experiencing an inventory glut due to the shortage of supplies that occurred during the COVID-19 pandemic earlier this year.
Streaming Xbox games will be a part of a 10-year deal between Microsoft, Nvidia, and Nintendo.
Nvidia shares have declined about 12% in the past 12 months, compared to the Dow Jones Industrial Average’s decline of 2%, the S&P 500’s decline of 7%, and the Nasdaq Composite’s decline of 14% over the same period.
On a call with analysts, Nvidia CEO Jensen Huang said that the industry has reached an “inflection point” in terms of artificial intelligence, which is forcing business owners of all sizes to buy Nvidia chips in order to develop machine learning software.
Increasingly, enterprises across the globe are understanding the importance of developing and implementing AI strategies to take advantage of modern AI’s versatility and capabilities, Huang explained.
As a company, Nvidia sells most of its GPUs for artificial intelligence in the data center category, making up most of its GPU sales. The revenue generated by the data centers increased by 11% on an annual basis to $3.62 billion in the third quarter. This growth has been attributed to the purchase of more products by U.S. cloud service providers, according to the company.
Despite the fact that sales of gaming products have been very high over the past few years, gaming revenue was down, as expected. As a result of the pandemic, gamers have been upgrading their systems with new graphics cards from companies such as Nvidia, but sales have dramatically slowed down over the past year.
In particular, Nvidia reported a revenue of $1.83 billion from gaming in the fourth quarter of last year, a drop of 46% compared with the same period the year before. The decline is believed to be due to the fact that the company is selling fewer chips to its partners because they currently have too much stock on hand.
Additionally, Nvidia also stated that it shipped fewer chips for game consoles during the quarter, which is reflected in the gaming category in which the company reported its earnings. In order to power the Switch, Nintendo uses a chip from Nvidia.
In contrast, the company’s gaming and data center businesses are much bigger than its other categories, such as professional visualization and automotive chips. For example, it has been reported by Nvidia that its professional visualization business for designers generated $226 million in revenue, down 65% over last year, and its automotive business generated $294 million, up 135% over last year.