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NVIDIA Earnings: Is AI Behind the Chip-Giant’s Gains?

Plus500 | Thursday 25 May 2023

Despite this year’s tech layoffs, inflation, recessionary fears, and uncertainties surrounding the US debt ceiling limit, chip-giant, NVIDIA (NVDA) soared almost 26% in after-hours trading following its earnings release on Wednesday, May 24th. 

Furthermore, despite the aforementioned economic hurdles and woes, NVIDIA was able to grow exponentially by 113.3% since the beginning of the year up till now. So what’s pushing the chip-maker’s stock upward and what was revealed in Wednesday’s earnings release? Here’s what you need to know about NVIDIA’s financial figures and its latest updates:

An image of a semiconductor microchip

NVIDIA’s Earnings Results

Yesterday, May 24th, one of the world’s most valuable chip-makers, NVIDIA, announced its first-quarter earnings for fiscal 2024 following which the company soared in after-hours trading. Needless to say, the earnings reports were above expectations.

This is because, whereas analysts expected an EPS of 92 cents, the company reported $1.09. As for revenue, while market expectations came in at about  $6.52 billion, the report showed a higher revenue of $7.19 billion. 

In addition, NVIDIA announced its projected sales for the current quarter to be approximately $11 billion, which is 50% over Wall Street's predictions of $7.15 billion.

The company's net income for the quarter was $2.04 billion, or 82 cents a share, up from $1.62 billion, or 64 cents, a year ago, while its overall sales slipped 13% from $8.29 billion a year ago. (Source:CNBC)

Could AI Be Behind NVIDIA's Highs?

There is no doubt that since the ChatGPT bonanza, AI has been making a bigger impact on the world's largest companies as many of them have been trying to take the AI lead, and it seems that NVIDIA is no exception. Some, including NVIDIA’s own CEO, Jensen Huang, even attributed the tech giant’s highs to its AI developments.

Huang revealed that NVIDIA was seeing “surging demand” for its data center products and a few days prior to the earnings release, he also stated that NVIDIA is expected to bring AI into “every industry.”

Accordingly, these AI efforts are reflected in the earnings report as the NVIDIA data center division surpassed the projected $3.9 billion and grew 14% YoY as it achieved $4.28 billion in sales.

Many attribute this stellar growth to a higher GPU demand, specifically from cloud vendors and major consumer internet companies. These entities rely on NVIDIA’s chips for training and deploying generative AI applications such as OpenAI's ChatGPT. 

As such, NVIDIA’s data center’s growth may reflect the growing significance of AI chips for cloud providers and enterprises managing extensive server networks.

Moreover, despite these impressive results, NVIDIA's AI efforts appear to be far from over. It appears that NVIDIA is continuing its collaboration with another, tech giant and leader, Microsoft (MSFT) in order to further advance enterprise-ready generative AI technologies.

On Tuesday, May 23rd, NVIDIA announced in its newsletter that it intends to partner with software behemoth, Microsoft, by adding the “NVIDIA AI Enterprise” software to Microsoft’s “Azure Machine Learning.” This integration, according to NVIDIA, is meant to assist enterprises in advancing AI initiatives. 

NVIDIA’s Enterprise Computing VP revealed that “with the coming wave of generative AI applications, enterprises are seeking secure accelerated tools and services that drive innovation.” And that “the combination of NVIDIA AI Enterprise software and Azure Machine Learning will help enterprises speed up their AI initiatives with a straight, efficient path from development to production.” This may have highlighted NVIDIA’s promising AI future further. 

Other Divisions 

NVIDIA is a multifaceted company that advances various technologies. Therefore, besides AI efforts and NVIDIA’s data center, it may also be important to keep in mind NVIDIA’s other divisions.

NVIDIA is a known leader in the gaming industry, however, whereas the company excelled in many divisions, the earnings showed that its PC graphic card sales dropped by 38% to $2.24 billion compared to the expected $1.98 billion. NVIDIA attributed this underperformance to a sluggish macroeconomic climate, along with the gradual introduction of their latest gaming GPUs.

On the flip side, the company’s automotive division which encompasses the development of chips and software for self-driving cars, soared 114% YoY.

What’s Next for NVIDIA?

In addition to its success in Q1, the company’s Q2 guidance appears to hint toward further growth. NVIDIA revealed that for the fiscal second quarter,  it expects a YoY revenue growth of 64% to land in at $11 billion and an adjusted EPS of $1.97 which would be an increase of 286%. 

Nonetheless, despite what could be promising projections, traders, investors, and analysts should keep in mind that the markets are known for their volatility and that the economic headwinds emerging from stubborn inflation, higher interest rates, recession fears, and the US debt ceiling crisis, may still play a detrimental role in the development of the markets, including NVIDIA’s growth. 

Accordingly, traders may want to keep track of any economic events to come, like central banks’ monetary policies, in general, and the Federal Reserve’s meeting in particular which is scheduled for June 13-14 to find out more clues. 

But that’s not all, other political events like the US sanctions on China could also send ripples in the chip market. This is because, back in 2018, under the Trump administration, the US banned China from accessing US hardware over concerns stemming from Huawei and ZTE devices.

As such, while the sanctions are no news, they seem to have drawn NVIDIA CEO’s attention more recently. In a recent interview, Huang revealed his concerns by saying that “If [China] can’t buy from … the United States, they’ll just build it themselves.” Furthermore, according to Huang, if these sanctions continue, China can then develop its own hardware products, which could severely harm companies like NVIDIA. 

All in all, whereas NVIDIA currently seems to be on a more positive track, there’s no guarantee that it would continue this upward trajectory given the aforementioned factors. Traders may want to keep track of its developments and other news to see if any substantial changes materialize.

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