Written by Xavi Mehta and Max A. Cherny and Stephen Nelis
(Reuters) – Nvidia Inc far beat expectations with its quarterly revenue forecast on Wednesday as an artificial intelligence boom fueled demand for its chips and said it would buy back $25 billion worth of shares, sending its shares higher after hours.
Nvidia has outsold projections by billions of dollars, showing that the boom in generative AI technologies that can read and write in human-like ways—and which are powered almost exclusively by Nvidia chips—shows no signs of slowing.
The additional $25 billion in Nvidia stock buybacks announced Wednesday comes as shares have already tripled this year, making the company the first-ever trillion-dollar chip company as investors bet that Nvidia will be the main beneficiary of The artificial intelligence boom.
Analysts estimated that demand for Nvidia’s precious AI chips exceeds supply by at least 50%, adding that the flaw will persist for the next few quarters.
“Companies around the world are moving from general purpose to accelerated computing and generative AI,” Jensen Huang, CEO of Nvidia, said in a statement.
Shares of Santa Clara, California-based Nvidia rose 9.6% in post-bell trading, reaching an all-time high.
But the company’s entire AI systems, not just its chips, were the biggest contributors to the quarter’s growth, according to its executives. Although Nvidia is best known for its graphics processing units (GPUs), it also produces AI hardware complete with memory chips from other suppliers and tens of thousands of other parts.
Nvidia’s report lifted shares of other big tech and AI-related firms, with Microsoft jumping 1.9%, Meta Platforms rising 2.1% and Palantir Technologies rising 4.6% in extended trading Wednesday.
Daniel Ives, an analyst at Wedbush Securities, said the results were a “drop the mic” moment in our opinion, which will have a ripple effect on the tech space for the rest of the year.
From AI startups to major cloud service providers like Microsoft, everyone is looking forward to getting more from Nvidia chips. Demand from China is also in overdrive, as companies there quickly place orders to stockpile chips before any further US export restrictions kick in.
If the US imposes additional export restrictions on sales of AI chips to China, it will not have an immediate impact on the company’s results, Colette Criss, CFO, told analysts on a conference call. Such controls would “lead to the permanent loss of the opportunity for American industry to compete and lead in one of the largest markets in the world.”
The company expects third-quarter revenue of about $16 billion, plus or minus 2%. Analysts polled by Refinitiv had, on average, expecting $12.61 billion.
Adjusted revenue in the second quarter was $13.51 billion, compared to an estimate of $11.22 billion.
Revenue from the company’s data center business rose 141% to $10.32 billion in the quarter ended July 30, beating analyst estimates of $7.69 billion by more than $2 billion, according to Refinitiv data.
“The second quarter results confirm its dominant position in harnessing the momentum of AI,” said Jacob Born, senior analyst, Insider Intelligence. “However, with the growing global appetite for Nvidia chips, overcoming supply chain hurdles to boost production is essential.”
To this end, NVIDIA spends large sums to secure supplies. The company reported a 53% jump to $11.15 billion in inventory liabilities compared to the prior quarter, largely due to long-term supply needs for its data center chips.
Analysts expect revenue from Nvidia’s data center segment to expand to as much as $40 billion for fiscal 2025, Refinitiv estimates, driven by Nvidia’s superiority in artificial intelligence chips and other related technologies such as the software that powers those chips to power the products. Like ChatGPT.
While rival Advanced Micro Devices’ main AI chip is expected to wrest some market share from Nvidia next year, analysts believe Nvidia’s software is years ahead of its CUDA competitor, ROCm.
Sales of chips for personal computers and data centers have been weak in recent months, hurting the chip industry. But AI is a bright spot, with cloud computing companies and start-ups alike buying AI-related chips from Nvidia and others like Broadcom and Marvell Technology.
Analysts expect spending on AI to continue to grow at the expense of other traditional server equipment.
Revenue from Nvidia’s gaming segment rose to $2.49 billion, above analyst estimates of $2.4 billion, according to Refinitiv data.
Excluding items, the company reported a profit of $2.70 per share in the second quarter, compared to an estimate of $2.09, according to Refinitiv data.
For the current third quarter, Nvidia expects adjusted gross margin to be 72.5%, plus or minus 50 basis points. Analysts, on average, expect gross margin to be 70.4%, according to Refinitiv data.
(Reporting by Xavi Mehta in Bengaluru, Stephen Nelis and Max A. Cherny in San Francisco, and Noel Randwich in Oakland, California. Editing by Maju Samuel, Sayantani Ghosh and Matthew Lewis)