Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Nvidia forecast higher than expected sales for its current quarter as the semiconductor designer said it expected strong growth in most regions to outweigh a “significant” drop in sales to China because of recently tightened AI chip rules.
The US group reported record revenues of $18.1bn for the three months to the end of October, up 206 per cent year on year as it continued to ride demand for its high-performance artificial intelligence chips.
In a note to investors, chief financial officer Colette Kress addressed concerns about the effect of new US sanctions on high-performance chip exports to China. The company expected sales to the Asian country to “decline significantly” in the current quarter, she said, but this should be “more than offset by strong growth in other regions”.
Nvidia has disclosed that as much as a quarter of its data centre revenue comes from its sales to China, leaving it exposed to geopolitical rivalries as Washington seeks to contain Beijing’s AI development.
The US commerce department last month announced fresh export restrictions on cutting-edge AI chips to China, affecting Nvidia’s A800 and H800 processors. This prompted it to design new AI chips that comply with export controls — although it is yet to formally announce them.
Nvidia expects revenues of about $20bn in the fourth quarter.
Nvidia’s data centre revenue was $14.5bn in the third quarter, up 279 per cent from a year ago, as its biggest customers including the likes of Google, Amazon and Microsoft race to build their AI capabilities.
Nvidia’s stock closed at a record high on Monday before slipping back 1 per cent to $499.44 on Tuesday. Its share price has more than tripled over the course of the past year, making it one of the best-performing stocks on Wall Street and lifting its market capitalisation above $1.2tn.
Nvidia shares were 1.7 per cent lower in after-hours trading following the earnings release.
Diluted earnings per share were $4.02 in the third quarter, compared with $2.70 in the second quarter and 58 cents for the same quarter of last year. Net income was $10bn, up 49 per cent on the prior quarter and 588 per cent year on year.
Nvidia’s chips are used in generative AI training models, and it wields a virtual monopoly on them — with the likes of Microsoft, AMD and Intel racing to catch up.
Last week Nvidia unveiled its H200 processor, an upgrade to its H100 chips, which it said offered “game-changing” performance and memory capabilities.
On a call following the earnings report, analysts repeatedly asked Kress for more detail on the impact of US export restrictions on the company’s revenues.
Kress said Nvidia did not have good visibility into their impact on its sales to China even over the longer term, and that while new regulation-compliant chips may become available in the coming months, “we don’t expect their contribution to be material or meaningful”.
Guidance for the current quarter could have been “a little higher” without the new restrictions, she conceded.
“It’s a significant process to both design and develop these new products,” Kress said. “That’s just going to take some time for us to go through, discussing with our customers their needs and desires for these new products that we have.”
Nvidia was “going to make sure that we are in full discussions with the US government” about the new products, she added.
Nvidia chief executive Jensen Huang emphasised that the explosion of AI products was still in its early stages. Software companies were realising that they were “sitting on a gold mine” of information that they could develop into their own custom AI products, he said, and a wide range of businesses were moving to build their own custom AIs.
“I think we are at the beginning of a — basically across the board — industrial transition to generative AI, to accelerated computing,” Huang said, with the “waves” of generative AI reaching beyond the start-up world to suffuse the global economy, bringing new customers to Nvidia.