By Yasin Ebrahim, Geoffrey Smith, and Senad Karaahmetovic
Investing.com -- Nvidia (NASDAQ:NVDA) said better times are ahead for its chipmaking business, sensing a huge opportunity for its high-performance chips amid a growing frenzy for the new generation of artificial intelligence tools.
"AI is at an inflection point, setting up for broad adoption reaching into every industry,” chief executive Jensen Huang said in a statement, noting that this greatly expanded potential demand. “From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI."
Huang also said that the slump in gaming activity that followed the end of the pandemic has ended, with gamers eagerly upgrading to a new generation of chips.
Nvidia shares rose 7% in pre-market trade following the report, and the company's upbeat outlook also fed through into Asian and European markets, lifting the stock prices of chipmakers in both regions. Taiwan Semiconductor Manufacturing (TW:2330) stock rose 2.2%, while BE Semiconductor (AS:BESI) opened 3.1% higher, and Infineon (ETR:IFXGn) and STMicroelectronics (EPA:STM) both rose 2.2%.
The upbeat outlook overshadowed a sharp fall in quarterly net profit, which dropped by more than half from a year earlier to $1.41 billion. Revenue fell 21% to $6.05B. Both numbers were slightly ahead of consensus forecasts.
Revenue in its gaming business fell 46% to $1.83B for the quarter, while its data center business grew revenue 11% to $3.62B.
The company said it expects revenue of around $6.50B in the current quarter, plus or minus 2%, with gross margins in a 1% range of around 64.1%. Wall Street analysts were looking for Q1 revenue of $6.43B.
With Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:META), Baidu (NASDAQ:BIDU) and others all throwing large amount of money at new content-generative AI tools, the company appears well positioned in the near term to benefit from the current buzz around AI, which is amplifying the secular trend toward digitization of more and more industries. Nvidia's stock has now risen over 40% this year on speculation that it will be a chief beneficiary of the AI arms race.
However, the onus is still on those developing the tools to prove that they can be reliably used. ChatGPT, the tool backed by Microsoft, has been widely criticized for its ability to generate false or unfounded information.
“While ChatGPT has highlighted the future potential for AI solutions (with Nvidia the clear leader in this space), we are less certain that its popularity has shifted the near-term demand for data center accelerators,” Wedbush said in a note.
While Nvidia delivered an earnings beat, Rosenblatt analysts highlighted "the biggest technology inflection the world may have ever seen in transformational AI everywhere and in everything."
"AI and Nvidia’s play in its 'entire' pipeline is accelerating in a way that will have disruptive implications not only on the competition (most AI chip start-ups will not be able to keep pace with the investment levels), but in the world at large; not to mention Nvidia’s model becoming more S/W centric," they wrote in a client note.