Nvidia’s shares experienced a 1% drop in extended trading on Tuesday despite reporting fiscal third-quarter results that significantly exceeded Wall Street predictions.
This decline in Nvidia’s stock reflects investor apprehension about the potential impact of upcoming export restrictions on sales in key markets such as China, coupled with the intensifying competition from rivals like Advanced Micro Devices Inc. (AMD).
Also read: Nvidia Unveils Three ‘New AI Chips’ Designed for the Chinese Market
Fiscal Third-Quarter: A Mix of Highs and Looming Lows
In its fiscal third quarter of 2024, Nvidia demonstrated a strong financial performance. The company’s revenue soared to $18.12 billion, marking a substantial 206% increase from the previous year and eclipsing the analysts’ forecast of $16.09 billion, as per LSEG (formerly known as Refinitiv). The adjusted earnings per share also outperformed, reaching $4.02, surpassing the anticipated $3.37.
Nvidia's revenue in Q3 was $18.12 billion, up 206% from a year ago. The data center revenue alone is $14.51 billion, up 279%. Gaming is also up 81% to $2.86 billion. The AI boom continues to benefit Nvidia pic.twitter.com/cTMZZpBTiW
— Tom Warren (@tomwarren) November 21, 2023
Despite these impressive figures, Nvidia’s finance chief, Colette Kress, indicated looming challenges. In a letter to shareholders, Kress warned:
“We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.”
Segment-Wise Revenue and Strategic Maneuvers
Nvidia’s revenue uptick is attributed to its strong performance across multiple segments. The data center segment, in particular, was a standout, achieving $14.51 billion in revenue, a 279% increase year-over-year, and surpassing the StreetAccount consensus of $12.97 billion. This growth was partly fueled by significant contributions from cloud infrastructure providers, including Amazon.
The gaming segment also posted substantial gains, generating $2.86 billion in revenue, an 81% increase over the previous year and exceeding the $2.68 billion consensus. These numbers reflect Nvidia’s solid positioning in the ever-growing gaming market.
In anticipation of export restrictions, Nvidia is engaging with clients in the Middle East and China to secure US government licenses for high-performance product sales. During an analyst call, Kress shared these efforts but also expressed reservations regarding the impact of new data center products that comply with government regulations in the fiscal fourth quarter.
AMD’s Emerging Challenge and Analyst Confidence in Nvidia
The introduction of AMD’s MI300 in the upcoming quarter presents a new challenge for Nvidia. This emerging competition, however, has not dampened analyst optimism. Raymond James’ Srini Pajjuri and Jacob Silverman remain bullish on Nvidia, maintaining a “strong buy” recommendation on the company’s stock.
Nevertheless, they emphasize Nvidia’s strong position in the Gen AI accelerator market, underscoring the high demand for GPUs. “GPU demand continues to outpace supply as Gen AI adoption broadens across industry verticals,” they remarked, indicating confidence in Nvidia’s ability to maintain over 85% market share in Gen AI accelerators through 2024.
GPU demand continues to outpace supply as Gen AI adoption broadens across industry verticals https://t.co/yJYgGKQ7tM
— J3FF3R (@itjeff) November 21, 2023
Nvidia’s commitment to innovation is evident in its recent product developments. The GH200 GPU, with its enhanced memory and additional Arm processor, underlines Nvidia’s strategy to lead in the high-performance GPU market. The company is also expanding its presence in cloud services, as indicated by its plans to introduce computing instances based on GH GPUs in Oracle’s cloud.
and then