Nvidia revenue triples on Artificial Intelligence chip rally

Tech giant, Nvidia, released staggering revenue this week of $18.12 billion (€16.62 billion) for the third quarter (Q3) of this year, higher than analyst estimates of $16.18 billion and amounting to a 206% year-on-year increase, as well as an increase of around 34% more than the previous quarter. 

The strong financial results were supported by exceedingly strong demand for the company’s graphic processing units (GPUs), which are essentially computer chips that render graphics and images by performing rapid mathematical calculations.

The company also announced adjusted earnings per share of $4.02, higher than the $3.37 per share expected. Net income clocked in at $9.24 billion, a massive leap from the $680 million seen in the last fiscal year’s third quarter.

Data centre revenues soared to $14.51 billion, ahead of estimates of $12.97 billion, mainly boosted by cloud infrastructure providers. This was about 279% more than the same time last year and around 41% more than the last quarter.

Gaming revenues clocked in at $2.86 billion, beating expectations of $2.68 billion. This was 81% higher year-on-year and 15% more than the last quarter.

Will 2024 be as profitable?

The company expects the fiscal fourth quarter of the year to yield a revenue of around $20 billion, which would mean a growth of almost 231%.

Nvidia also revealed its new GH200 GPU during the third quarter, which is expected to be cheaper as well as have more memory storage than its current processors.

Victoria Scholar, head of investment at Interactive Investor, noted: “The company which produces GPUs, critical in the AI market, however warned that it anticipates softness in China in the fourth quarter because of US export controls.

“It also warned about a potential impact to its business from the Israel-Hamas conflict. These two factors combined with lofty expectations for the stellar stock market winner this year, sent Nvidia shares lower by 1.7% after hours, extending a near 1% drop in Tuesday’s session.”

However, she highlighted that the lower move is a mere drop in the ocean, compared to this year’s triple digit surge.

Impact of export restrictions

Meanwhile, the firm noted how export restrictions will primarily impact Nvidia’s A800 and H800 chips from being exported to China, and could also extend to AMD and Intel chips. 

This is likely to be a matter for ongoing negotiations between the US and China. The US is attempting to block China’s access to sophisticated semiconductors, which could prove to be vital for military and artificial intelligence purposes.

However, this has led to increased speculation that China could choose to retaliate with its own economic sanctions against the US. This could be particularly worrying, given how dependent the US currently is on Chinese imports.

Back in October, when the US had announced extended export restrictions, Nvidia had reassured investors that they would not impact short-term earnings, but could affect longer-term prospects. This is the scenario being seen now.

In order to somewhat circumvent these new sanctions, the company has been in the process of creating new government-compliant data centre products. However, it is unlikely that they will be ready in time to make a significant impact on the fiscal fourth quarter results.

The AI race and ChatGPT

Nvidia has recently also seen far more demand due to the development of ChatGPT, which has sparked a race for other AI developers to create their own chatbots. As a result, more chips and GPUs have been in demand, which is likely to continue for the foreseeable future, as long as consumers keep developing more Gen AI products.

However, the company could still face issues with lower revenues and roundabout export channels, in case US export restrictions increase. Having to develop new compliant products to export could also take a hit on both its finances and competitiveness for the short-term at least, due to the time and capital involved.