Nvidia surpasses expectations with strong outlook, yet concerns over China remain

Nvidia surpasses expectations with strong outlook, yet concerns over China remain

Nvidia, the chip designer, has provided a positive forecast for its fiscal fourth-quarter revenue, surpassing Wall Street expectations. The company has attributed this optimistic outlook to the easing of supply-chain issues. Nvidia, which relies on chipmakers like TSMC for manufacturing, has expressed confidence in the improvement of supply for its AI chips in each quarter. To ensure suppliers prioritize its chips, Nvidia has made prepayments and placed noncancellable orders. The demand for artificial-intelligence servers has witnessed rapid growth, with research firm TrendForce estimating a 40% increase in shipments this year. However, while Nvidia expects to offset lost sales to China with demand from other countries, the expanded U.S. export controls on its high-end chips for China have raised concerns among investors, causing the company’s shares to slip about 1% in after-hours trading. Despite this, analysts anticipate that Nvidia’s order books will remain full until at least August next year, as the demand for its AI chips, particularly in the United States, continues to outpace supply.

In terms of financial performance, Nvidia reported adjusted third-quarter revenue of $18.12 billion, representing a significant increase of 206% compared to estimates of $16.18 billion. Data center revenue for the quarter rose by 41% to $14.51 billion, while gaming revenue saw a 15% increase to $2.86 billion. Excluding items, the company’s earnings per share stood at $4.02, surpassing estimates of $3.37 per share. Looking ahead, Nvidia expects current-quarter revenue of $20 billion, with a margin of plus or minus 2%, while analysts predict revenue of $17.86 billion.

However, Nvidia also issued warnings regarding its data center segment sales, revealing that approximately a quarter of the company’s sales in this segment come from China. Additionally, other regions such as the Middle East are now affected by new U.S. export controls. Chief Financial Officer Colette Kress stated that the company anticipates a significant decline in sales to these destinations in the fourth quarter of fiscal 2024. Nevertheless, Nvidia believes that this decline will be offset by strong growth in other regions. In response to the expanded U.S. export controls, the chip designer has already developed three new products specifically for the Chinese market.

Furthermore, major tech companies including Google, Amazon, and Microsoft have announced the production of their own AI chips in addition to purchasing Nvidia’s hardware for their data centers. Building custom chips requires significant investment and time, but it allows these tech giants to incorporate features tailored to their specific AI needs. Microsoft, for instance, recently introduced two custom-designed computing chips, one of which is capable of running large language models. Meanwhile, Chinese tech company Huawei’s AI chip, developed as an alternative to Nvidia’s A100 chip, is gaining traction among local firms due to the difficulties in accessing Nvidia chips caused by U.S. pressure. Baidu, for example, has ordered 1,600 of Huawei’s 910B Ascend AI chips for 200 servers.

Despite the challenges posed by U.S. export controls and uncertainties in the Chinese market, Nvidia remains optimistic about its future prospects, driven by strong demand for its AI chips and its efforts to adapt to changing circumstances.