Nvidia Earnings and AI Sales Boost Forecast Send Stock up 25%

Nvidia (NASDAQ:NVDA) shares traded as much as 25% higher on Thursday after the chip giant reported very strong results for its first quarter. More importantly, the company absolutely crushed analyst estimates for expected sales in the second quarter to send its shares sharply higher.

While analysts were expecting the generative AI to boost Nvidia sales in 2023, pretty much no one was expecting a forecast that topped the Street consensus by over 50%. The massive beat-and-raise quarter perfectly showcases why Nvidia is dominating the gaming and AI/accelerated compute sectors.

Given the rapid surge in Nvidia stock year-to-date, the company is now close to becoming the first-ever trillion-dollar chip business.

How Did Nvidia Perform in Q1?

Nvidia delivered $1.09 in profit per share to easily beat analyst expectations for earnings of $0.92 a share. Revenue came in at $7.19 billion, up 19% from the previous quarter and higher by over 10% relative to the consensus of $6.52 billion.

“The computer industry is going through two simultaneous transitions — accelerated computing and generative AI,” Jensen Huang, founder and CEO of NVIDIA, said in a press release.

Nvidia reported a record sales quarter for its Data Center business as this segment generated $4.28 billion in sales, up 14% from a year ago and up 18% from the previous quarter. Analysts were expecting $3.9 billion in Q1 revenue for the Data Center.

This business unit has benefited from several product launches as well as from the increasing focus on enterprise AI solutions. Nvidia said this part of its business benefited from growing demand for its GPU chips from cloud companies and strong interest from large internet companies that need high-end chips to train and deploy generative AI applications.

“A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process. Our entire data center family of products — H100, Grace CPU, Grace Hopper Superchip, NVLink, Quantum 400 InfiniBand and BlueField-3 DPU — is in production. We are significantly increasing our supply to meet surging demand for [data center chips],” Huang further noted in the press release.

While the gaming division saw its sales plunge 38% year-over-year to $2.24 billion, this was still better as analysts were expecting just $1.98 billion in Q1 sales. The chipmaker said the PC sector has continued to experience a slowdown and it continues to face “a challenging consumer spending backdrop."

The non-GAAP gross margin expanded by 70 basis points from the prior quarter to 66.8%, but still down 0.3% YoY. Net income soared 25% from 4Q22 to $2.71 billion.

Nvidia also said that it returned $99 million to shareholders through dividends in Q1. The company will pay its next quarterly cash dividend of $0.04 per share on June 30, 2023.

Guidance Lifts Shares

While investors were pleased to see that Nvidia outperformed expectations in the first quarter despite a slowdown in the gaming division, it is the second quarter forecast that is providing a massive boost for the chipmaker’s shares.

Nvidia said it expects to generate $11 billion in Q2 sales, up or down 2%, crushing analyst expectations for $7.15 billion. Nvidia expects its non-GAAP gross margin to further expand to 70%, up or down half a percent.

Nvidia said that the upside is driven by a massive increase in demand for generative AI and large language models. The following commentary from the company’s CFO Colette Kress on the earnings call also helped Nvidia shares to rally in after-market hours yesterday.

“This demand has extended our data center visibility out a few quarters, and we have procured substantially higher supply for the second half of the year,” CFO Kress said.

She specifically highlighted Nvidia’s flagship Hopper and Ampere architecture GPUs that are seeing robust demand as they are critical for generative AI applications. CEO Huang added on the call that Nvidia was already in full production of both Ampere and Hopper when OpenAI’s ChatGPT hit the market.

Kress singled out Meta Platforms Inc (NASDAQ:META), saying that the internet giant has been deploying the H100-powered brand Teton AI supercomputer for its AI-related needs. The senior executive also named Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Oracle (NYSE:ORCL), Bloomberg, and ServiceNow (NYSE:NOW) as some of the other larger clients.

The company may provide more forward-looking commentary in June when it is due to appear at several tech-focused events.

Rosenblatt analysts said they didn’t witness a guidance beat of this magnitude.

"In the 15+ years we have been doing this job we have never seen a guide like the one NVDA just put up with FQ2 outlook that was by all accounts cosmological, and which annihilated expectations," they wrote.

Summary

Nvidia shares have continued their massive rally in 2023 after the company delivered a strong set of Q1 results and a blockbuster outlook for the current quarter. The company highlighted a massive surge in demand for high-end chips that are used for generative AI apps while also seeing strength in networking from both CSP (LON:CSPC) and enterprise customers during the quarter.

Nvidia shares were up 109% year-to-date through Wednesday’s close. The surge in stock price on Thursday also provided a significant boost for shares of Advanced Micro Devices (NASDAQ:AMD).

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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 artificial intelligence.