Nvidia delivers on AI hype, igniting $189 billion stock rally

San Francisco - Nvidia, the chipmaker at the centre of an artificial intelligence boom, gave another bullish sales forecast, showing that AI computing spending remains strong.

Second-quarter revenue will be about US$28 billion (S$37.8 billion), the company said on May 22, topping the US$26.8 billion predicted by analysts. Results in the fiscal first quarter, which ended on April 28, also beat projections – lifted by growth in Nvidia’s data centre division.

The big question heading into the earnings report was whether Nvidia’s latest numbers could justify the dizzying run-up in its stock. The shares have gained 92 per cent in 2024 through May 22’s close, fuelled by investor hopes that the company would continue to shatter expectations.

The report did not disappoint, and chief executive Jensen Huang stoked the excitement by talking about the dawning of a new era.

“This is the beginning of a new industrial revolution,” he said in an interview, echoing one of his favourite themes. “This is really exciting.”

The upbeat outlook reinforces Nvidia’s status as the biggest beneficiary of AI spending. The company’s so-called AI accelerators – chips that help data centres develop chatbots and other cutting-edge tools – have become a hot commodity in the past two years, sending its sales soaring. Nvidia’s market valuation has skyrocketed as well, topping US$2.3 trillion.

In the fiscal first quarter, Nvidia’s revenue more than tripled to US$26 billion. Excluding certain items, profit was US$6.12 a share. Analysts had predicted sales of about US$24.7 billion and earnings of US$5.65 a share.

Nvida’s shares rose as much as 7.8 per cent in extended trading on May 22, taking them above US$1,000 for the first time. The company also announced a 10-for-1 stock split and boosted its quarterly dividend by 150 per cent to 10 US cents a share.

If the after-hours stock gain holds up in regular trading on May 23, Nvidia will add roughly US$140 billion (S$189 billion) to its valuation. That is greater than the entire market capitalisation of Intel, a chipmaker that once dwarfed Nvidia by every measure. And Nvidia’s US$28 billion in projected quarterly sales would be more than twice what Intel is expected to report.

The rally helped lift the shares of other companies associated with AI such as Super Micro Computer, Advanced Micro Devices and Dell Technologies.

Mr Huang, in his signature black leather jacket, has become a celebrity in the AI era. His company, which he co-founded in 1993, started as a provider of graphics cards for computer gamers. But he recognised that Nvidia’s chips were well suited to developing AI software and that helped open a new market – and gave him a jump on competitors.

The release of OpenAI’s ChatGPT chatbot in 2022 then sparked a race between major technology companies to build their own AI infrastructure. The scramble made Nvidia’s H100 accelerators a must-have product. They sell for tens of thousands of dollars per chip and are often in scarce supply.

For now, much of this new revenue comes from a small handful of customers. A group of four companies – Amazon.com, Meta Platforms, Microsoft and Alphabet’s Google – are Nvidia’s largest buyers and have accounted for about 40 per cent of sales.

Mr Huang, 61, is trying to spread his bets by producing complete computers, software and services – aimed at helping more corporations and government agencies deploy their own AI systems.

Nvidia’s data centre division – now by far its largest source of sales – generated US$22.6 billion of revenue in the last quarter. Gaming chips provided US$2.6 billion. Analysts had given targets of US$21 billion for the data centre unit and US$2.6 billion for gaming.

Nvidia emphasised on May 22 that it wants to sell its technology to a wider market – expanding beyond the giant cloud-computing providers known as hyperscalers.

Mr Huang said that AI is moving to consumer internet companies, carmakers, biotechnology and healthcare customers. Countries also are developing their own systems – a trend referred to as sovereign AI.

Demand for Nvidia’s products has outpaced supply, and Mr Huang expects that to remain the case into 2025.

The company is also contending with other challenges: The increasing complexity of its technology, which now includes complete computer systems, means that its supply chain has become much more complicated, he said.

That makes it more difficult to increase output.

“Nobody has ever manufactured supercomputers at volume,” he said in the interview. “We’re doing the best we can.” BLOOMBERG