Nvidia Surges as Demand for AI Chips Exceeds Expectations, Boosting Revenue Forecast

Nvidia AI chips

Nvidia, the US chipmaker, experienced a substantial surge in its stock price during after-market trading as it issued a revenue forecast that surpassed Wall Street expectations. The increasing demand for chips used in training the latest generation of generative artificial intelligence (AI) systems, like ChatGPT, propelled Nvidia’s projected sales to over $11 billion for the three months ending in July. This figure surpassed analysts’ estimates of $7.2 billion and solidified Nvidia’s position as the primary short-term beneficiary in the AI race that has captivated the technology industry.

The revenue forecast prompted a remarkable 27 percent surge in Nvidia’s shares, which had already more than doubled since the beginning of the year, elevating the company’s market value to a record-breaking $960 billion.

Jensen Huang, the CEO of Nvidia, emphasized the company’s significant efforts to meet the soaring demand by “significantly increasing our supply.” Nvidia’s focus extends to its entire range of data center chips, including the H100, a product specifically designed to handle the requirements of large language models such as OpenAI’s GPT-4.

The competition within the tech industry to develop larger AI models has led to concerns among customers about a potential shortage of H100 chips, which were introduced to the market earlier this year. However, Nvidia’s impressive sales of $4.28 billion to data center customers in the last quarter exceeded even the most optimistic forecasts from analysts. The company reported strong demand for both the H100 and its A100 chips, which are based on its previous chip architecture.

Colette Kress, the CFO of Nvidia, highlighted the anticipated surge in demand extending beyond the current quarter. While it is too early for the company to provide long-term financial guidance, Kress acknowledged that the visibility of future demand has extended for several quarters. As a result, Nvidia has procured “substantially higher supply for the second half of the [fiscal] year.”

Nvidia’s forecast indicates the potential for a doubling of sales to data center customers within three months, despite data center sales already reaching an annualized rate of $17 billion in the first quarter of this year. The remarkable growth is driven by a wide range of customers, including consumer internet companies, cloud computing providers, and enterprise customers, all eager to leverage generative AI for their businesses.

This bullish forecast from Nvidia coincided with the company reporting better-than-expected revenue and earnings in its latest quarter ending in April. The jump in sales to data center customers, driven by the surging demand for AI, contributed to a revenue of $7.19 billion, marking a 19 percent increase from the preceding quarter but a 13 percent decline from the previous year. The earnings per share rose by 22 percent compared to the previous year, reaching 82 cents or $1.09 on a pro forma basis, as evaluated by Wall Street analysts. The consensus view on Wall Street had anticipated revenue of $6.52 billion and pro forma earnings of 92 cents per share.

As Nvidia continues to outperform expectations and witness remarkable demand for its AI chips, the company solidifies its position as a key player in the rapidly expanding AI industry.