Nvidia's forecast beat expectations by billions of dollars,
demonstrating that a boom in generative AI technologies that can read and write
in human-like ways - and powered almost exclusively by Nvidia's chips - shows
no signs of slowing down.
Nvidia's additional $25 billion in share repurchases
announced on Wednesday come as shares have already tripled this year, making
the company the first ever trillion-dollar chip business as investors bet
Nvidia will be the key beneficiary of the AI boom.
Analysts have estimated that demand for Nvidia's prized AI
chips is exceeding supply by at least 50 percent, adding that the imbalance
will stay in place for the next several quarters.
"Companies worldwide are transitioning from
general-purpose to accelerated computing and generative AI,” Jensen Huang,
Nvidia's chief executive, said in a statement.
Shares of Santa-Clara, California-based Nvidia rose 9.6
percent in trading after the bell, hitting an all-time high.
But it was the company's entire AI systems, not just its
chips, that were the largest contributor to the quarter's growth, according to
its executives. Although known for its graphics processing units (GPUs), Nvidia
produces whole AI machines with memory chips from other suppliers and tens of
thousands of other parts.
Nvidia's report lifted the shares of other Big Tech stocks
and AI-related companies, with Microsoft jumping 1.9 percent, Meta Platforms up
2.1 percent and Palantir Technologies surging 4.6 percent in extended trading
on Wednesday.
The results were a "'drop the mic' moment in our
opinion that will have a ripple impact for the tech space for the rest of the
year," said Daniel Ives, analyst at Wedbush Securities.
From AI startups to major cloud services providers like
Microsoft, all are looking to get their hands on more Nvidia chips. Demand from
China is also in overdrive, as companies there are placing rush orders to
stockpile chips before any further US export curbs come into action.
Should the US place additional export restrictions on AI
chip sales to China, it would have no immediate impact on the company's
results, finance chief Colette Kress told analysts on a conference call. Such
controls would "result in a permanent loss of an opportunity for the US
industry to compete and lead in one of the world's largest markets."
The company forecast third-quarter revenue of about $16
billion plus or minus 2 percent. Analysts polled by Refinitiv on average were
expecting $12.61 billion.
Adjusted revenue in the second quarter was $13.51 billion compared with estimates of $11.22 billion.
Revenue at the company's data center business rose 141
percent to $10.32 billion in the quarter ended July 30, beating analyst
estimates of $7.69 billion by more than $2 billion, according to Refinitiv
data.
"Its Q2 results underscore its dominant position in
harnessing the AI momentum," said Insider Intelligence senior analyst
Jacob Bourne. "Yet as global appetite for Nvidia's chips intensifies,
navigating supply chain hurdles to boost production is essential."
To that end, Nvidia is spending big to secure supply. The
company reported a 53 percent jump to $11.15 billion of inventory commitments
from the previous quarter, largely because of the long-term supply needs for
its data center chips.
Analysts expect revenue from Nvidia's data center segment to
expand to as much as $40 billion for its fiscal 2025, according to Refinitiv
estimates, driven by Nvidia's edge in AI chips and other related technologies such
as the software to put those chips to work to power products like ChatGPT.
While rival Advanced Micro Devices' key AI chip is expected
to pry away some market share from Nvidia next year, Nvidia's software has a
years' long lead over its CUDA competitor called ROCm, analysts believe.
Sales of chips destined for personal computers and data
centers have been weak in recent months, which has hurt the chip industry. But
AI is a bright spot, with cloud computing businesses and startups alike buying
up AI-related chips from Nvidia and others such as Broadcom and Marvell
Technology.
Analysts expect AI spending to continue growing at the
expense of other traditional server equipment.
Revenue at Nvidia's gaming segment rose to $2.49 billion,
above analyst estimates of $2.4 billion, according to Refinitiv data.
Excluding items, the company earned $2.70 per share in the
second quarter, compared with estimates of $2.09, according to Refinitiv data.
For the current third quarter, Nvidia expects adjusted gross
margin to be 72.5 percent, plus or minus 50 basis points. Analysts on average
forecast gross margin to be 70.4 percent, according to Refinitiv data. ©
Reuters
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