SAN FRANCISCO - US chip giant Nvidia, whose products play a crucial role in artificial intelligence (AI) systems, crushed expectations on Wednesday, as the AI frenzy continues to lift the tech sector.

The Silicon Valley-based company said sales doubled year on year to US$13.5 billion (S$18.3 billion) in the latest completed quarter, driving net profit to US$6.2 billion – an eye-watering 843 per cent higher than a year before.

Signalling that the boom in AI is still going strong, Nvidia said revenue in the current quarter would ramp up further to US$16 billion.

Wedbush Securities managing director and senior equity research analyst Dan Ives said: “The entire tech sector and overall market was waiting for Nvidia, with this being the purest and best barometer for AI demand.”

In the end, the earnings “were a ‘drop the mic’ moment that will have a ripple impact on the tech space for the rest of the year”, he said.

Nvidia’s stock rose more than 8 per cent following the results. The company’s share price has more than trebled in 2023.

Nvidia’s quintessential position in delivering AI has made it a bellwether on the generative AI frenzy that took hold of the tech world after the release of ChatGPT in late 2022.

As the wave began to build, the company already wowed Wall Street with spectacular earnings earlier in the year, lifting Nvidia to become a trillion-dollar company based on market capitalisation, a rare perch shared by only a handful of companies.

Nvidia manufactures graphics processing units (GPUs), a powerful chip technology that is necessary to build the AI that delivers ChatGPT as well as image, facial and speech recognition.

The company also offers AI-focused computers and services, making it an unparalleled one-stop shop for AI.

Originally designed for video game graphics, each of Nvidia’s GPU chips costs tens of thousands of dollars, and companies are scrambling to stock up as the pressure to keep up with the AI revolution grows.

Supply crunch?

Customers have struggled to get their hands on Nvidia’s AI chips as start-ups, big companies, governments and cloud providers ramp up orders and hoard stock.

Mr Elon Musk, who started his own AI company in 2023, has said that GPUs “are considerably harder to get than drugs” at the moment, with buyers even looking to buy components from struggling cryptocurrency companies that also use GPUs.

Some fear that Nvidia may eventually struggle to meet demand for crucial components, with Taiwan’s TSMC chipmaking plants hard-pressed to meet Nvidia’s needs.

Nvidia does not actually make its own chips, but rather designs them and then outsources the manufacturing to other companies. It is therefore vulnerable to chokepoints in its complex supply chain.

Nvidia’s strategic role in AI saw the United States government in 2022 place export restrictions on the company’s highest-performing chips, which forced it to make slower versions for the Chinese market.

The White House is considering additional export curbs that could further limit Nvidia’s access to the crucial Chinese market.

In an analyst call, Nvidia’s chief financial officer Colette Kress warned against the US cracking down further, saying it “will result in a permanent loss of an opportunity for the US industry to compete and lead in one of the world’s largest markets”. AFP