(Bloomberg) — Investors at Nvidia Corp. received a lukewarm response to its latest quarterly report, which beat analysts’ average forecast but failed to meet the higher expectations of shareholders who are betting heavily on a boom in artificial intelligence.
Most read from Bloomberg
The world’s most valuable chipmaker said in a statement on Tuesday that revenue for the period was about $20 billion, although that beat Wall Street’s average forecast of $17.9 billion, with some forecasts as high as $21 billion.
The stock ended down about 1% after falling 6.3% in late trading.
While Nvidia posted another quarter of impressive growth, some investors were clearly expecting more. They have invested heavily in the stock this year, sending its stock price up 242%, hoping that the artificial intelligence industry can continue to bring explosive sales growth to Nvidia. Analysts say this means Nvidia’s stock price needs to be priced at a level that will produce absolutely perfect results.
Wolfe Research analyst Chris Caso said in a note to clients that lofty expectations aside, “Nvidia’s results are still shocking,” he said, considering The numbers are particularly impressive as U.S. restrictions on China are hurting sales. He noted that chips designed for China on Tuesday could help the market rebound.
Ahead of Tuesday’s report, Nvidia shares closed at $499.44 in New York. The company is the best-performing stock on the Philadelphia Stock Exchange’s Semiconductor Index this year, with a valuation of more than $1.2 trillion.
In fact, Nvidia’s current market capitalization is more than $1 trillion higher than that of rival Intel Corp., which until recently was the world’s largest chipmaker.
Nvidia CEO Jensen Huang has taken advantage of graphics chips to take a leading role in what he calls accelerated computing. The company’s processors process more data by executing operations in parallel and have become the tool of choice for training artificial intelligence services.
The company said revenue more than tripled to $18.1 billion in the fiscal third quarter ended Oct. 29. Excluding certain items, profit per share was $4.02. Analysts had forecast sales of about $16 billion and earnings of $3.36 per share.
Nvidia’s data center division is the leader among its operations, with revenue of $14.5 billion, an increase of 279% year over year. Meanwhile, the company’s PC division has rebounded from an industry-wide slowdown. Its revenue rose 81% to $2.86 billion.
Nvidia has successfully sold artificial intelligence chips to companies such as Microsoft and Alphabet. Google is also targeting it. Microsoft launched its own in-house artificial intelligence processor last week, following a similar effort by Amazon. AWS. This quarter, Advanced Micro Devices Inc. will also launch Nvidia’s rival MI300. But Nvidia isn’t sitting still. It recently launched a successor to its prized H100 chip, called the H200, which will be available early next year.
Read more: Microsoft unveils first custom-designed AI cloud chip
Another threat to Nvidia’s business is U.S. restrictions on exports to China, its largest chip market. The Biden administration has restricted sales of some of Nvidia’s best products, citing national security concerns.
The U.S. government recently updated regulations governing such exports in October, aiming to make restrictions harder to circumvent. Nvidia said the changes will not affect its sales for the time being, given strong demand for its products in other regions. But the requirements are forcing it to retool its operations and could have repercussions going forward.
Nvidia reiterated on Tuesday that the regulations had no “meaningful impact” on the last quarter. But China and other regions affected by restrictions account for about a quarter of its data center revenue. “We expect our sales to these destinations to decline significantly in the fourth quarter of fiscal 2024, but we believe strong growth in other regions will more than offset this decline.”
Chief Financial Officer Colette Kress said U.S. regulations require licenses for some exports and advance notice for other types of chips shipped to China and some Middle Eastern countries. The company is working with customers in those areas to get permission to ship some of its products and “solutions” that won’t trigger restrictions.
Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note that China’s fourth-quarter decline “while not worrisome in the short term, may become an area of concern for investors.”
Kress said Nvidia is developing some new chips that won’t trigger export restrictions. The chips will appear in the coming months but are unlikely to help results in the current period. It’s too early, and there are too many factors involved, she said, to predict how such products might impact future revenue.
She said fourth-quarter guidance would have been higher without new regulations on shipments from China.
At the same time, Huang strongly dismissed questions about whether the company’s data center business has reached a growth peak. Nvidia is adding more supply, and software vendors, government and enterprise customers are expanding their use of artificial intelligence hardware, leading him to believe demand will continue.
“I absolutely believe that data centers can grow by 2025,” he said.
Santa Clara, Calif.-based Nvidia said it spent more on employees after raising wages and hiring new employees, with operating expenses rising 13% from a year earlier and 10% from the previous quarter.
The company is also investing more in taking care of its workers in Israel.
“We are monitoring the impact of geopolitical conflicts in Israel and the surrounding region on our operations, including the health and safety of our approximately 3,400 employees in the region who primarily support the research and development, operations, and sales and marketing of our networking products,” Nvidia said. . “Our operating expenses for the third quarter of fiscal 2024 include financial support costs impacting our employees and philanthropic activities.
Artificial intelligence has been the hottest topic among technology investors this year, with major companies talking about their capabilities in this field. But Nvidia is one of the few companies making big money from this trend, which has accelerated since the public debut of OpenAI’s ChatGPT. November 2022. The tool helped demonstrate the potential of generative artificial intelligence to a wider audience.
(Updated with more information about Chinese chips starting in the fifth paragraph.)
Most read from Bloomberg Businessweek
©2023 Bloomberg