Nvidia shares soar after ‘off the charts’ AI chip sales; strong forecast calms bubble fears for now

SAN FRANCISCO - Nvidia, the world’s most valuable company, forecast quarterly revenue well above Wall Street estimates on Nov 19 and chief executive Jensen Huang touted blockbuster demand for its artificial intelligence chips from giant cloud providers.

The results calmed – at least temporarily – investor nerves frayed over concerns that an AI boom has outrun fundamentals. Global markets have looked to the chip designer to determine whether investing billions of dollars in AI infrastructure expansion has resulted in an AI bubble.

Shares of the AI market bellwether jumped 5 per cent in extended trading on Nov 19, adding US$220 billion (S$287 billion) to its market value. Its US rivals Broadcom, Advanced Micro Devices and Micron Technology also rose in after-hours trading. 

In Asia, AI-related stocks mirrored the move. In Japan, blue-chip gauge Nikkei 225 advanced as much as 4.2 per cent, with Nvidia chip gear suppliers Tokyo Electron, Advantest and Lasertec all surging at least 6 per cent. 

Taiwan’s benchmark index Taiex rose as much as 3.4 per cent, with Nvidia supplier Taiwan Semiconductor Manufacturing Co’s 4.7 per cent gain. South Korea’s memory chipmakers SK Hynix and Samsung Electronics both advanced at least 3.5 per cent. 

While trading was upbeat, pockets of investors suggested the results amounted to a temporary reprieve as fundamental concerns over valuation and hefty investments remain unsettled. 

“I think this looks more like a relief rally than a full reset of valuation worries,” said Pepperstone Group strategist Dilin Wu. “Nvidia delivered what the market needed, but the deeper questions haven’t gone away – from whether mega-caps can monetise their massive AI capex to how sustainable debt-fuelled spending really is.” 

Ahead of the results, doubts had pushed Nvidia’s shares down nearly 8 per cent in November, after a surge of 1,200 per cent in the past three years. The broader US market has declined almost 3 per cent in November.

“Blackwell sales are off the charts, and cloud GPUs (graphics processing units) are sold out,” Mr Huang said in an earnings release, referring to the latest model of its state-of-the-art hardware.

“The AI ecosystem is scaling fast – with more new foundation model makers, more AI start-ups, across more industries, and in more countries. AI is going everywhere, doing everything, all at once.”

On a call with analysts, he said: “There’s been a lot of talk about an AI bubble. From our vantage point, we see something very different.”

Nvidia said it expected fiscal fourth-quarter sales of US$65 billion, plus or minus 2 per cent, compared with analysts’ average estimate of US$61.66 billion, according to data compiled by LSEG. Nvidia’s third-quarter sales rose 62 per cent, their first acceleration in seven quarters.

Sales in the data-centre segment, which accounts for a majority of Nvidia’s revenue, grew to US$51.2 billion in the quarter ended Oct 26. Analysts expected sales of US$48.62 billion, according to LSEG data.

But some analysts said the earnings report may not be enough to quell AI bubble fears completely.

“The concern that AI infrastructure spending growth is not sustainable is not likely to ebb,” said Stifel analyst Ruben Roy.

Cloud giants including Microsoft and Amazon are investing billions in AI data centres, and some investors have argued that these companies were artificially boosting earnings by extending the depreciable life of AI compute gear, such as Nvidia’s chips.

Possible impediments to growth

Factors beyond Nvidia’s control could impede its growth.

“While GPU demand continues to be massive, investors are increasingly focused on whether hyperscalers can actually put this capacity to use fast enough,” said eMarketer analyst Jacob Bourne. “The question is whether physical bottlenecks in power, land and grid access will cap how quickly this demand translates into revenue growth through 2026 and beyond.”

Nvidia’s business also became increasingly concentrated in its fiscal third quarter, with four customers accounting for 61 per cent of sales, up from 56 per cent in the second quarter.

At the same time, Nvidia sharply increased how much money it spends renting back its own chips from its cloud customers who otherwise cannot rent them out, with those contracts totalling US$26 billion – more than double its US$12.6 billion in the previous quarter.

Still, analysts and investors widely expect the underlying demand for AI chips, which has powered Nvidia’s results since ChatGPT’s launch in late 2022, to remain strong.

Mr Huang said in October the company has US$500 billion in bookings for its advanced chips through 2026. REUTERS, BLOOMBERG