Nvidia shares jump 13% after sales surge at 'tipping point' for artificial intelligence

Open Editor's Digest for free

Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.

Nvidia shares jumped after the world's most valuable chip company reported a 265 percent increase in quarterly revenue and forecast stronger sales thanks to a spending frenzy on artificial intelligence.

Nvidia said on Wednesday evening that revenues reached $22.1 billion in the fourth quarter, far exceeding Wall Street expectations of $20.4 billion, adding that it expects revenues for the current quarter to reach $24 billion.

“Accelerated computing and generative AI have reached a tipping point,” said Jensen Huang, founder and CEO of Nvidia. “Demand is increasing worldwide across companies, industries and countries.”

The California-based company has a market capitalization of about $1.7 trillion, and has overtaken Alphabet, Google's parent company, as the third most valuable listed company. Shares rose more than 13 percent in premarket trading Thursday to $764.50.

Nvidia has been the biggest single driver of the S&P 500's rise this year, fueling about a quarter of the index's gains. Its importance has become so great that some investors and analysts were expecting Wednesday's financial report to carry a market-wide risk similar to the release of inflation data.

Nvidia said earnings per share reached $4.93 in the fourth quarter, beating analysts' expectations of $4.59, according to LSEG Estimates.

Net income rose 770 percent to $12.3 billion compared to the same period a year earlier, which also exceeded analysts' expectations of $10.4 billion.

Nvidia, founded in 1993 as a provider of graphics cards for computer games, has become a proxy for demand for AI as major technology companies such as Alphabet, Microsoft, Amazon and Meta increase their investments in AI computing. Its pioneering chips, such as the H100, have become the industry standard for AI developers to process data for large language models. This has heralded a new industry known as generative artificial intelligence, chatbots and other software that can learn, understand and generate information in the form of text, images and videos.

The rapid success of OpenAI's ChatGPT helped turn H100 chips into the hottest commodity in Silicon Valley last year. Meta plans to raise its total inventory of H100 chips to 350,000 in 2024, CEO Mark Zuckerberg said in January. Supply, not demand, has become the main constraint on Nvidia's growth in the short term.

“Nvidia has enabled a completely new paradigm of computing called generative AI,” Huang said on a call with investors on Wednesday. Its high-value chips are “essentially the artificial intelligence generating factories” of a new industrial revolution, he said.

“Every company is built on its own business intelligence and, in the future, on proprietary generative AI,” he added. “Now every industry is joining us.”

Big technology companies account for roughly 40 percent of Nvidia's revenue, but its customers have diversified as more industries rush to invest in AI computing hardware. Industries including automobiles, financial services and healthcare are now spending on their chips at a “multi-billion-dollar level,” Huang said. Sovereign countries including Japan, Canada and France have become Nvidia's biggest customers as they harness citizen data to create their own AI models, he added.

Nvidia's data center division is the biggest driver of sales, generating $18.4 billion in revenue in the fourth quarter, up 409 percent from the same period last year. Gaming chips generated $2.9 billion in sales.

Investors are paying close attention to whether Huang can maintain Nvidia's stratospheric growth rates as it shifts its focus to new products, such as its cutting-edge B100 AI chip, which is expected to start shipping later this year.

The company also faces increasing competition, including a move by some customers to develop their own AI chips, also in China, which once accounted for a quarter of revenue. New US export rules for the semiconductor industry have meant that Nvidia has had to limit its product capabilities in order to continue selling to the region.

Even as sales to China fell to a “mid-single-digit percentage” of total revenue, according to the company, analysts welcomed its latest results. Peter Garney, head of equity strategy at Saxo Bank, said it was a “crazy” result. “I've never seen anything like this in my career. However, it will be increasingly difficult for Nvidia to beat expectations, and this could be a crazy fourth quarter.”