The demand for Nvidia’s processors was greatly surpassed by its quarterly revenue prediction on Wednesday, and the company also announced it will repurchase $25 billion worth of stock, sending its shares surging after hours.
A rise in generative AI technologies that can read and write in human-like ways and are almost completely driven by Nvidia‘s chips has shown no signs of slowing down, as seen by Nvidia’s prediction beating estimates by billions of dollars.
The additional $25 billion in share repurchases that Nvidia announced on Wednesday come as its stock has already tripled this year, making it the first chip firm to ever be valued at a trillion dollars. Investors believe Nvidia will be the primary beneficiary of the AI boom, and they bet on this outcome.
Analysts predict that demand for Nvidia’s highly sought-after AI chips is at least 50% higher than supply and that the imbalance will continue for the upcoming quarters.
Jensen Huang, the CEO of Nvidia, stated in a statement that “companies worldwide are transitioning from general-purpose to accelerated computing and generative AI.”
Nvidia, a company based in Santa Clara, California, saw a 9.6% increase in share price in after-bell trading, setting a record.
Microsoft increased 1.9%, Meta Platforms increased 2.1%, and Palantir Technologies increased 4.6% in extended trading on Wednesday as a result of the news about Nvidia.
According to Daniel Ives, an analyst at Wedbush Securities, Nvidia’s results were a “‘drop the mic’ moment that will have a ripple effect for the tech space for the rest of the year.”
Startups in the AI industry as well as large cloud service providers like Microsoft are all vying for more Nvidia chips. Due to businesses there placing urgent orders to stockpile chips before any additional U.S. export restrictions take effect, demand from China is also at an all-time high.
According to finance head Colette Kress, if the U.S. imposed more export restrictions on sales of AI chips to China, it would immediately affect the company’s financial performance. The U.S. industry would “permanently lose an opportunity to compete and lead in one of the largest markets” as a result of such limitations.
Revenue for the third quarter was expected to total roughly $16 billion, plus or minus 2%. On average, Refinitiv’s analysts surveyed predicted $12.61 billion.
In the second quarter, adjusted revenue came in at $13.51 billion vs expectations of $11.22 billion.
In the three months that ended on July 30, the company’s data centre division generated revenue that increased by 141% to $10.32 billion, above analyst projections of $7.69 billion by more than $2 billion, according to Refinitiv data.
According to Insider Intelligence senior analyst Jacob Bourne, “Its Q2 results underscore its dominant position in harnessing the AI momentum.” To overcome supply chain obstacles and increase manufacturing, however, is crucial as demand for Nvidia’s processors grows worldwide.
In order to ensure supply, Nvidia is investing heavily. Due primarily to the long-term supply requirements for its data centre chips, the business reported a 53% increase in inventory commitments from the prior quarter to $11.15 billion.
Refinitiv forecasts that analysts predict Nvidia’s data centre sector sales to increase to as high as $40 billion for its fiscal 2025, led by Nvidia’s leadership in AI processors and other associated technologies like the software to use those chips to power products like ChatGPT.
Although experts predict that rival Advanced Micro Devices’ major AI processor will take some market share away from Nvidia the following year, they also feel that Nvidia’s software has a significant advantage over ROCm, a CUDA rival.
The semiconductor industry has suffered recently due to lacklustre sales of chips meant for personal computers and data centres. However, AI is a bright area, with startups and cloud computing companies alike purchasing Nvidia and other AI-related processors from companies like Broadcom and Marvell Technology.
Analysts anticipate that expenditure on AI will continue to rise at the expense of other conventional server hardware.
According to Refinitiv statistics, revenue at Nvidia’s gaming division increased to $2.49 billion, exceeding analyst projections of $2.4 billion.
In the second quarter, the firm earned $2.70 per share after items, beating projections of $2.09, according Refinitiv data.
Nvidia anticipates its adjusted gross margin for the current third quarter to be 72.5%, plus or minus 50 basis points. According to statistics from Refinitiv, analysts expect the gross margin to be 70.4% on average.
