Nvidia Corp. is set to report its third-quarter earnings after markets close Tuesday as analysts predict solid results. Investors will watch Nvidia’s results closely amid high demand for AI graphics units and concerns about U.S.-China trade restrictions.
Nvidia’s market value has more than tripled since the start of the year, and its share price closed Monday at a record high of $504.09. Nvidia, an AI darling, manufactures graphics cards for data centers, including those that power OpenAI’s ChatGPT. It earlier this year entered the trillion-dollar, market value club, a milestone reached by companies including Google parent Alphabet, Amazon, Microsoft, Facebook owner Meta Platforms, Apple, and Tesla.
Nvidia’s data center business – its largest – is expected to have revenue of $12.8 billion, a nearly fourfold increase from the same period last year and up from $10.3 billion in the second quarter.
“We expect DC segment sales to continue to rise for the next several quarters and the magnitude of growth to be primarily driven by the speed of supply expansion, as demand continues to run ahead of supply,” noted Kunjan Sobhani and Oscar Hernandez Tejado, analysts at Bloomberg Intelligence, in a preview note to investors.
The chart shows a segment-wise breakdown of revenue.
Analysts forecast Nvidia to post a net income of $7.5 billion, rising from $680 million in the same period last year.
Adjusted earnings per share is expected to be $3.36, compared with 58 cents from the same period last year and up from $2.70 in the second quarter.
The company has turned into the poster child for all things A.I. as its graphics processing units (GPU) are powerful accelerators in computing required to create A.I. products. It has been launching new products, and striking deals with cloud services and startups to diversify revenue streams, giving investors more reasons to invest.
It hasn’t been all smooth sailing for Nvidia. The U.S. Department of Commerce last month placed export restrictions on certain Nvidia GPUs to China and other select countries, citing security concerns. China’s President Xi Jinping met President Biden in San Francisco last week, an inconclusive sign of conflict resolution, according to some analysts. Nvidia is reportedly working on specific chips to cater to their Chinese customers.
“The U.S. is being careful about A.I.,” said Jim Kelleher, director of research and senior analyst at Argus Research Corp. “[It’s] too early to see the Biden administration roll back multiple restrictions. Instead, Nvidia can sell to the other 190 countries in the world.”
Ever since ChatGPT launched late last year, Nvidia, its GPU supplier, has been the most powerful ally to companies looking to build AI products. The company reported in SEC filings that it was facing a supply constraint as its semiconductor chips partner Taiwan Semiconductor Manufacturing Co. (TSMC) faced a massive demand boost. According to news reports, however, the company and TSMC are both expanding their production capacity to supply all the back-ordered GPUs.
Even with a supply constraint on certain Nvidia GPUs, investors are confident that it can expand its production capacity to meet the surging demand.
In the meantime, the company has wasted no time launching a new supercomputing chip GH200, to keep business as usual. Along with that, Nvidia launched DGX Cloud earlier in the spring, to leverage its DGX technology to virtual machines, which can be accessed remotely. DGX Cloud can be accessed through major cloud service providers like Google, Microsoft Azure, and Oracle. Analysts predict that growing data center sales from major cloud service providers will sustain Nvidia’s data center growth well into 2025.
Overall, the company is poised for growth in all its remaining segments, including gaming and professional visualization. Operating income edged 24.6% higher than the previous quarter reaching a total of $9.6 billion compared with $7.7 billion. The company is expected to rake in $16 billion in total revenue this quarter, a 19% increase from the previous quarter.