- For the second time in a row, Nvidia blew away analyst expectations
- The company posted a massive upside relative to Q2 and Q3 revenue expectations
- Chipmaker continues to attract multi-billion orders for its new high-end AI chips
Nvidia (NASDAQ:NVDA) shares rose on Thursday after the renowned chipmaker reported stronger-than-expected numbers for its second quarter and offered guidance that easily topped analyst estimates.
Nvidia’s Q2 earnings report was one of the most anticipated EPS events in recent memory after the company gave a jaw-dropping revenue forecast when reporting results for the first quarter.
While expectations were really high, as Nvidia is by far the best-positioned chipmaker for the ongoing AI transition, the company easily delivered against these lofty expectations as it offered another stunning revenue outlook for the ongoing quarter.
A High-Quality Beat Across the Board
Nvidia said its revenue surged to as much as $13.51 billion in the second quarter, marking an extraordinary growth of 88% and 101% on sequential and annual basis, respectively. The strong upside was driven by surging data center revenue, which was up 141% and $171% on QoQ and YoY basis, respectively.
“A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA.
“NVIDIA GPUs connected by our Mellanox (NASDAQ:MLNX) networking and switch technologies and running our CUDA AI software stack make up the computing infrastructure of generative AI.”
Analysts were looking for total revenue of $11.04 billion and data center sales of $7.98 billion. The majority of the upside came from the U.S., where customers direct their capital investments to AI and accelerated computing.
This unit hosts a division that builds high-end AI chips, for which Nvidia reportedly has several multi-billion orders for years in advance.
“During the quarter, major cloud service providers announced massive NVIDIA H100 AI infrastructures. Leading enterprise IT system and software providers announced partnerships to bring NVIDIA AI to every industry. The race is on to adopt generative AI,” Huang added.
CFO Colette Kress said on the earnings call that some of the biggest cloud services providers in the world – Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Oracle (NYSE:ORCL) – are all lining up to buy the company’s latest AI-focused products.
“There is tremendous demand for Nvidia accelerated computing and AI platforms,” Kress said.
Gaming revenue came in at $2.49 billion, up 22% YoY and ahead of the consensus of $2.38 billion. Nvidia generated an additional $379 million and $253 million from its Professional Visualization and Automotive segments, respectively.
On the bottom line, the company posted a profit per share of $2.70, crushing the expected $2.07 billion. The adjusted gross margin came in at 71.2%, while analysts were looking for 70.1%.
Milking the AI Cash Machine
After it generated $7.78 billion in adjusted operating income, Nvidia announced a massive stock buyback program of up to $25 billion. Nvidia said it spent $3.28 billion on buybacks in the second quarter, and it had the remaining $4 billion of authorization as of the end of Q2.
While the vast majority of tech companies are increasing their spending on capital expenditures to prepare for the AI-dominant world, Nvidia is on the other side of the equation – profiting tens of billions of dollars from selling high-end AI chips.
However, there could be a catch. Some believe that Nvidia's choosing to return a portion of its cash pile to shareholders is a warning on AI as it could be struggling to find attractive investing opportunities in this space.
Companies are buying back stock generally for two reasons: either they believe the stock is cheap, or they have nothing better to do with its cash, and then they choose to give it back to investors.
Nvidia stock trades at more than 45 times trailing revenues; hence it is definitely not cheap. It could be that Nvidia wants to maximize shareholder returns and fully capitalize on its market-leading position.
However, the massive buyback could also be a sign that the tech titan sees little market share left to expand into.
Earlier this month, Nvidia presented an even faster AI chip, which is aimed at fully cementing its market-dominant position.
The new AI processor further enhances the chip’s capacity and speed and is specifically built for the era of accelerated computing and generative AI, the chipmaker said in a press release.
“To meet surging demand for generative AI, data centers require accelerated computing platforms with specialized needs,” said Jensen Huang, founder and CEO of NVIDIA.
“The new GH200 Grace Hopper Superchip platform delivers this with exceptional memory technology and bandwidth to improve throughput, the ability to connect GPUs to aggregate performance without compromise, and a server design that can be easily deployed across the entire data center.”
The Grace Hopper Superchip provides the GPU full access to the CPU memory, with Nvidia saying that it offers a combined 1.2TB of fast memory when in dual configuration.
It can also deliver a total of 10TB/sec of combined bandwidth, which translates into allowing the new platform to run models 3.5x larger than the previous version while improving performance with 3x faster memory bandwidth.
More importantly, CFO Kress said on the call that Nvidia expects supply to rise each quarter through next year.
Nvidia is struggling to cope with the demand for its high-end chips, hence the overwhelming focus has been on increasing the supply and the number of partners that can produce these unique products.
Nvidia’s CFO also warned that the U.S. government prohibiting the sale of our data center GPUs to China “will result in a permanent loss of an opportunity for the U.S.”
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.