- Nvidia is the world's most valuable chipmaker with a market cap of about $1.23 trillion
- The chipmaker reported another quarter of record sales yesterday
- The company provided a robust revenue outlook, indicating strong demand for high-end AI chips
Nvidia (NASDAQ:NVDA) delivered another set of mind-boggling results for the third quarter as robust demand for high-end AI chips is set to persist into the coming years. Nvidia is now focused on expanding its dominant position in the training of LLMs through the introduction of new hardware and software applications.
Shares of the chipmaker were down about 1% in early Wednesday trade, likely due to the buy-the-rumor-sell-the-fact response to the latest quarterly report. Shares gained about 25% in the last few weeks.
Crushing Expectations is a New Normal
Everyone was expecting another set of brilliant results from Nvidia and the company delivered again. Adjusted earnings per share came in at $4.02, a stark contrast compared to the 58 cents reported for the year-ago period. Analysts were looking for $3.36 in earnings per share.
Revenue rose more than 200% relative to the same quarter last year, coming in at $18.12 billion versus the expected $16.09 billion. Data center revenue was reported at $14.51 billion, up 41% from the previous quarter and up 279% from a year ago.
“Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA.
Gaming revenue surged 82% to $2.86 billion, also ahead of the $2.7 billion that analysts expected. Nvidia generated an additional $416 million and $261 million from its Professional Visualization and Automotive business units.
The adjusted gross margin further expanded, coming in at 75%. For the same period last year Nvidia reported an adjusted gross margin of 56.1%. Analysts were looking for 72.5% for Q3.
The chip giant generated as much as $7.04 billion in free cash flow in Q3 after reporting an adjusted operating income of $11.56 billion.
“NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off,” Huang added.
In terms of the fourth-quarter outlook, Nvidia said it sees revenue at $20 billion, plus or minus 2%. The Street was looking for $17.9 billion in Q4 sales. The adjusted gross margin is seen at 75%, up or down 50 basis points.
During the third quarter, Nvidia presented the GH200 GPU chip configuration, featuring more memory than the existing H100 and an additional Arm processor onboard. The H100 is both expensive and in high demand.
“GPU demand continues to outpace supply as Gen AI adoption broadens across industry verticals,” Raymond James analysts Srini Pajjuri and Jacob Silverman said.
“We are not overly concerned about competition and expect NVDA to maintain >85% share in Gen AI accelerators even in 2024.”
Based on the comments about a deal with Iris Energy, a Bitcoin mining data center owner based in Australia, the average price of H100s is about $40,000 per unit.
Walking a Tightrope
Last month, the U.S. government moved to impede shipments of more advanced artificial intelligence chips, including those designed by Nvidia, to China. This move is part of a broader set of measures aimed at preventing Beijing from acquiring cutting-edge U.S. technologies to bolster its military capabilities.
The new order has extended restrictions on a wider range of advanced chips and chipmaking tools to additional countries, including Iran and Russia. New curbs address loopholes in rules released in October of the previous year and are expected to undergo updates at least annually, according to the U.S. Commerce Department.
In response to these new restrictions, Nvidia launched new artificial intelligence chips specifically targeted at the Chinese market. While these chips incorporate many of Nvidia's latest AI features, the specifications suggest that certain computing power measures have been scaled back to align with the recently imposed U.S. regulations
Chinese tech behemoths, like Tencent (HK:0700), have been aggressively buying high-end AI chips from Nvidia as they tried to stockpile these strategic reserves ahead of the implementation of U.S. export restrictions.
Tencent’s management admitted recently it had strategically acquired components from Nvidia to continue advancing its generative AI model for at least "a couple of generations."
“One of the key things that we have done was actually we were the first to put in orders for [the] H800, and that allows us to have a pretty good inventory,” Martin Lau, President of Tencent, said.
Nvidia said on Tuesday that it expects its fourth-quarter sales in China to “decline significantly.” The company’s CFO, Colette Kress, said in a letter to shareholders that Nvidia is well-positioned to “more than offset” the decline in sales in this region.
Kress added that the fourth-quarter guidance would have been higher if not for the China-focused restrictions. She also acknowledged the uncertainty surrounding the magnitude of the negative effect on the company's China business due to the export controls, although she added that Nvidia may also launch some new products in cooperation with the U.S. government.
In the meantime, the chipmaker is working with customers in China and the Middle East to obtain necessary export licenses from the U.S. In the last few quarters, China has contributed more than 20% to Nvidia’s data center revenue, according to Kress.
"The export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term," Kress said.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.