Nvidia fails to satisfy lofty investor expectations

NEW YORK: Nvidia Corp investors gave a cool reaction to its latest quarterly report, which blew past average analysts’ estimates but failed to satisfy the loftier expectations of shareholders who have bet heavily on an artificial intelligence (AI) boom.

Revenue in the current period will be about US$20bil, the world’s most valuable chipmaker said in a statement. Though that topped the average Wall Street prediction of US$17.9bil, some projections reached as high as US$21bil.

After sliding as much as 6.3% in late trading, the shares settled down to a decline of about 1%.

While Nvidia posted another quarter of impressive growth, some investors were clearly anticipating more. They have poured money into the stock this year, sending it up 242%, in the hopes that the AI industry will continue to bring explosive sales gains for Nvidia.

That means Nvidia shares were priced at a level that required an absolutely perfect outcome, analysts have said.

Setting aside the outsized expectations, “Nvidia’s results continue to be astounding,” Wolfe Research analyst Chris Caso said in a note to clients.

The numbers are particularly impressive given that US restrictions on China are hurting sales, he said.

Moreover, Nvidia announced new chips designed for China that could help that market rebound, he noted.

The company has been the best-performing stock on the Philadelphia Stock Exchange Semiconductor Index this year, sending its valuation to more than US$1.2 trillion.

In fact, Nvidia’s market capitalisation is now more than US$1 trillion bigger than that of rival Intel Corp, which until recently was the world’s largest chipmaker.

Nvidia chief executive officer Jensen Huang has parlayed a prowess in graphics chips into a leading role in what he calls accelerated computing.

The company’s processors, which crunch more data by performing calculations in parallel, have become the go-to tool for training AI services.

In the financial third quarter, which ended Oct 29, revenue more than tripled to US$18.1bil, the company said.

Profit was US$4.02 per share, minus certain items. Analysts had predicted sales of about US$16bil and earnings of US$3.36 per share.

Nvidia’s data centre division, the star performer in its operations, had US$14.5bil in revenue, up 279% from the same period a year earlier.

The company’s personal computer unit, meanwhile, has rebounded from an industry-wide slowdown. Its revenue rose 81% to US$2.86bil.

Nvidia’s success in selling AI chips to companies such as Microsoft Corp and Alphabet Inc’s Google has also made it a target. Microsoft unveiled its own in-house AI processor last week, following a similar effort by Amazon.com Inc’s AWS. Advanced Micro Devices Inc also debuted a competitor to Nvidia called the MI300.

But Nvidia isn’t standing still. It recently unveiled a successor to its prized H100 chip, dubbed the H200, and it will be available early next year.

Another threat to Nvidia’s business has come in the form of US curbs on exports to China, the largest market for chips.

The Biden administration has restricted the sale of some of Nvidia’s best products on national security grounds.

The US government updated its rules on such exports in October, aiming to make the restrictions harder to circumvent.

Nvidia said that the changes won’t affect its sales for now, given the insatiable demand for its products elsewhere. But the requirements are forcing it to rejigger operations and could have an impact down the road.

Nvidia reiterated that the rules didn’t have “a meaningful impact” last quarter. But China and other areas affected by the curbs have accounted for about a quarter of its data centre revenue.

“We expect that our sales to these destinations will decline significantly in the fourth quarter of the financial 2024, though we believe the decline will be more than offset by strong growth in other regions,” the company said. — Bloomberg