Nvidia expects revenue boom as AI drives chip demand

Soaring demand for the chips needed to train the latest wave of generative artificial intelligence systems such as ChatGPT led Nvidia to issue a revenue forecast far ahead of Wall Street expectations, prompting a surge in its stock price in after-market trading.

The US chipmaker on Wednesday said it expected sales to reach $11bn in the three months to the end of July, more than 50 per cent ahead of the $7.2bn analysts had been expecting and confirming its position as the biggest short-term beneficiary of the AI race that has broken out in the technology industry.

The forecast fuelled a 27 per cent leap in Nvidia’s shares, which had already more than doubled since the start of the year, and lifted its stock market value to a record $960bn.

Jensen Huang, chief executive, said the company was “significantly increasing our supply to meet surging demand” for its entire family of data centre chips, including the H100, a product launched this year that was designed to handle the demands of so-called large language models such as OpenAI’s GPT-4.

The race in the tech industry to develop larger AI models has led some customers to worry privately about a shortage of H100 chips, which only went on sale earlier this year. However, Nvidia’s $4.28bn in sales to data centre customers in its latest quarter topped even the most optimistic analysts’ forecasts, and the company said there had been strong sales of both the H100 and its A100 chips, based on its previous chip architecture.

Colette Kress, chief financial officer, pointed to a further surge in demand that would extend well beyond the current quarter, though she said it was too early for the company to issue longer-term financial guidance. Visibility about future demand had “extended out a few quarters” and led Nvidia to procure “substantially higher supply for the second half of the [fiscal] year”, she said.

Nvidia’s forecast noted a potential doubling of sales to data centre customers in three months, even though data centre sales were running at an annualised rate of $17bn in the opening quarter of this year. Growth is coming from customers across the board, Kress said, with consumer internet companies, cloud computing providers and enterprise customers all rushing to apply the generative AI to their businesses.

The bullish forecast came as Nvidia reported revenue and earnings in its latest quarter, to the end of April, had also topped forecasts, thanks to a jump in sales to data centre customers as demand for AI took off. Revenue reached $7.19bn, up 19 per cent from the preceding three months but down 13 per cent from the year before, as sales of chips for gaming systems dropped.

Earnings per share rose 22 per cent from a year before to 82 cents, or $1.09 on the pro forma basis Wall Street judges the company. The consensus view on Wall Street had been for revenue of $6.52bn and pro forma earnings of 92 cents a share.