Key takeaways
- Nvidia smashed every metric going on its earnings beat for the second quarter and raised guidance for Q3
- Nvidia shares were up nearly 10% in premarket trading at the news
- The chip maker’s dominance isn’t set to be seriously challenged any time soon as its competitors haven’t gone to market
Nvidia just smashed it out of the park again. With an earnings beat that was up on revenue, income and profitability several times over, a breathless Wall Street rewarded the chip maker with close to a 10% boost to its already sizeable share price, having become a trillion-dollar company earlier this year.
Nvidia’s dominance in the generative AI sector knows no bounds, with chips and software for data centers, gaming and supercomputers either in the works or already released. It’s no wonder its clients – and investors – can’t get enough of the stock. Here’s the latest.
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What happened with Nvidia’s earnings?
Ready for some mind-blowing financial figures that prove Nvidia is in the right place at the right time? Let’s have at it, starting with the chip maker’s second-quarter net income, which reached $6.7 billion. That’s a 422% increase over the same period last year. Operating income increased 487% year-on-year to reach $7.77 billion.
Nvidia’s sales on an annual basis grew 101% to $13.51 billion, beating forecasts of $11.2 billion. The company’s gross margin expanded 25 percentage points compared to last year to reach 71.2%, meaning the company is far more profitable than before, too.
Adjusted earnings for its July quarter arrived at $2.70 per share, smashing the predicted $2.08 from analysts. Revenue also soared for Nvidia’s data center segment, reaching $10.32 billion. That’s up 141% from the three months before and 171% from the same time last year.
The biggest news was the forecast for the third quarter. Nvidia put the mid-range at $16 billion, way higher than Wall Street’s expectations of $12.6 billion. “A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” Nvidia CEO Jensen Huang said in the release. “The race is on to adopt generative AI.”
What’s Nvidia’s role in AI?
Nvidia is at the very center of the AI revolution, which burst onto the scene with OpenAI’s runaway success, ChatGPT. Right now, every Big Tech company is spending billions of dollars on ensuring they have the proper infrastructure and equipment to handle the AI revolution. And Nvidia is providing everyone with the graphics processors they need to make AI chatbots and systems.
The demand for Nvidia’s H100 chip, its highest-end AI semiconductor chip, and its complicated systems like the HGX box drive sales. While a H100 chip retails for up to $30,000, a HGX box is ten times that. These top-end, expensive systems have helped Nvidia with its blockbuster earnings reports in the last two quarters.
Big Tech also buys from Nvidia because of its software programming platform, CUDA. Nvidia has had this tech in place for a decade already, with a library of AI application models ready to go. The software ecosystem also makes switching to competitors like AMD and Intel difficult.
Aside from this, Nvidia is constantly innovating. In May, Huang unveiled a suite of new Nvidia products designed to power the next phase of generative AI, including a new AI supercomputer platform, DGX GH200, Nvidia ACE for Games to give games AI-powered NPCs, and a new data center networking system. It’s not a company resting on its laurels, that’s for sure.
How did Wall Street react?
Needless to say, investors were blown away by the figures. Nvidia shares are up 9.43% in late trading Wednesday and premarket Thursday. Nvidia’s share price is around $471, and the stock has risen just shy of 230% since the start of the year. That’s a stellar performance compared to the Philadelphia Stock Exchange Semiconductor Index’s 41% gain.
In June, Nvidia became the seventh company ever and the first chip maker business to reach a trillion-dollar valuation. At the time, Nvidia had to cross the $404 threshold to achieve the almighty status – and the share price has sailed past that since then. Virtually every analyst has upgraded their targets for the share price in the lead-up to the earnings report this week, with one analyst at Elazar Advisors predicting $1,600.
The Nvidia halo effect was also in action, boosting other stocks that use the company’s chips. Microsoft saw a 1.4% gain, Apple’s share price increased 2.1%, and Meta was up 2.3.%. Nvidia’s rivals made gains, too: AMD climbed 3.5% and Intel was up 3.3%.
Could anyone challenge Nvidia’s dominance in AI?
U.K.-based chip company Arm, which Japanese investment firm Softbank owns, has just filed for its IPO in the U.S. The company is looking for between a $60 billion to $70 billion valuation, as it specializes in designing semiconductor chips, including the components and software needed for the chips. In May, the company debuted two new energy-efficient machine-learning chips that could rival Nvidia’s dominance.
As for Nvidia’s rivals, they’re not out of the gates yet. Intel has said the following versions of its data center accelerator chips, including an upgraded version of its Gaudi3 AI chip, are “in the pipeline”, according to CEO Pat Gelsinger, but there are no firm dates.
AMD has a firmer timeline, with the launch of its flagship MI300 artificial intelligence chips set to launch in the fourth quarter. These are set to compete with Nvidia’s H100 chips, with CEO Lisa Su saying at the company’s latest earnings call that customer interest was “very high” and AMD was preparing for an “aggressive” launch.
Given Nvidia is struggling with supply and demand, we imagine AMD’s chips will start to eat into Nvidia’s dominance in the AI chip market. But Nvidia has already made billions in profit, and with competitors going at a snail’s pace in comparison, there’s no end in sight to the Nvidia gravy train.
The bottom line
Nvidia has positioned itself over the last decade to prepare for AI and is reaping the rewards. Without a competitor product in place, Nvidia’s dominance isn’t set to end anytime soon – even when AMD, Intel and other competitors release their AI chips.
We also don’t see the share price dropping soon, with many analysts predicting Nvidia’s share price will go to the moon as the generative AI boom develops. As long as Nvidia keeps producing world-class chips, investors can expect the share price to keep delivering for the long term.
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