Nvidia Corporation has once again proven its dominance in artificial intelligence (AI) with third-quarter earnings surpassing Wall Street expectations. Despite the impressive results, shares of the AI chip giant experienced minor volatility due to investor concerns about future growth projections and supply chain challenges.
Earnings Surpass Expectations, Revenue Forecast Adjusted
Nvidia posted adjusted earnings of 81 cents per share for the third quarter, exceeding the consensus estimate of 75 cents. The company also forecast fourth-quarter revenue at $37.5 billion, slightly above analysts’ $37.09 billion expectations.
However, investors expressed disappointment, as the forecast did not meet the market’s lofty hopes of $39 billion or more. Nvidia’s revenue guidance for this quarter marked its smallest beat in seven quarters.
AI Revolution Propels Nvidia’s Success
CEO Jensen Huang reaffirmed Nvidia’s leadership in AI, stating, “The age of AI is in full steam, propelling a global shift to Nvidia computing.”
Demand for Nvidia’s Hopper chips and anticipation for the upcoming Blackwell processors remain strong. These high-performing AI chips are critical for training and running generative AI models.
Data Centre Segment Drives Growth
The company’s data centre segment, accounting for the majority of its revenue, experienced remarkable growth. Revenue surged 112% to $30.77 billion in Q3, driven by robust demand from cloud service providers expanding their generative AI capabilities.
However, this growth rate is lower than the 154% increase recorded in the previous quarter, raising questions about Nvidia’s ability to maintain such rapid expansion.
Supply Constraints Present Challenges and Opportunities
Supply chain issues, particularly with manufacturing partner TSMC, continue to pose challenges for Nvidia. Limited advanced manufacturing capacity has constrained the supply of Blackwell chips.
Analysts, however, view these constraints as a potential advantage. Melius Research highlighted that supply shortages could lead to revenue acceleration once production bottlenecks ease.
Stock Performance: Volatile but Resilient
Nvidia shares fell 2% in extended trading on Wednesday after closing down 0.8% during regular hours. Despite initial disappointment, the stock rebounded in pre-market trading and appeared poised to reach a new record.
The stock has already quadrupled this year and increased ninefold over the past two years, cementing Nvidia’s position as a Wall Street favourite.
Analysts Share Optimistic Outlook
Deutsche Bank analyst Ross Seymore plans to raise earnings estimates by 15% for the next two years. Nvidia’s “trademark beat-and-raise” performance continues to inspire confidence among investors.
Citi analyst Atif Malik predicted further positive momentum at the January CES conference, where Nvidia will showcase its AI vision.
Addressing Design Flaws in Blackwell Chips
Nvidia revealed it had resolved design flaws in the Blackwell chip by altering blueprints used by TSMC. This quick resolution demonstrates Nvidia’s commitment to maintaining product excellence.
Gross Margins Remain Enviable
While gross margins are expected to decline slightly, Nvidia’s projected 73% margin for Q4 remains unparalleled in the semiconductor industry. Hargreaves Lansdown’s Derren Nathan commented, “Many companies would envy a 70% mark-up.”
Future Outlook
Despite facing high expectations and supply challenges, Nvidia remains a leader in AI innovation. The company’s strategic investments in next-generation chips and AI solutions position it well for sustained growth.
Nvidia’s upcoming CES 2024 keynote and efforts to address supply constraints are expected to drive further investor optimism. As the “age of AI” progresses, Nvidia continues to set the benchmark for technological advancement and financial performance.
