Nvidia smashes forecasts – but China trade drag looms large
Nvidia once again beat Wall Street’s lofty expectations last night, reporting nearly $44.1bn in revenue in its first quarter – a staggering 69 per cent jump year on year.
But despite a positive set of numbers and a surge in data centre sales, there are still warning lights blinking on the AI chip giant’s dashboard.
Shares rose nearly five per cent in after hours trading as the firm posted a net income of $18.8bn, up 26 per cent, with adjusted gross margins at 71.3 per cent before China-related charges.
Yet revenue for the current quarter, at $45bn, fell slightly short of market consensus, with the culprit pointing towards a fresh hit from Washington’s tightening grip on tech exports to China.
Nvidia told the market it took a $45bn write down on unsold chips intended for the Chinese market, missing out on $2.5bn in potential sales.
What’s more, the impact of US export controls is expected to slash around $8bn off next quarter’s top line.
Even so, chief executive Jensen Huang kept a bullish tone: “Global demand for Nvidia’s AI infrastructure is incredibly strong”, he said, touting the ramp-up of his flagship ‘backwell’ system, dubbed a ‘thinking machine’ for AI reasoning, now shipping in volume.
Data centre domination
Nvidia’s data centre unit, which is the engine of its AI push, delivered $39.1bn in revenue for the first quarter, up 73 per cent year on year and now accounting for 88 per cent of total turnover.
That division includes sales of the firm‘s powerhouse Blackwell and Hopper GPUs, which power everything from ChatGPT to Microsoft’s Azure cloud.
Microsoft, a key partner, has deployed “tens of thousands” of Blackwell chips, and is expected to ramp up “hundreds of thousands”, chief financial officer Colette Kress said on the earnings call.
Nvidia’s networking arm, a critical piece of its AI infrastructure puzzle, also pulled in $5bn.
Gaming, once the chip behemoth’s bread and butter, is still growing, up 42 per cent year on year to $3.8bn.
This was bolstered by demand for chips in the new Nintendo Switch 2.
Meanwhile, the firm’s automotive and robotics business jumped 72 per cent to $567m.
“We don’t know how he does it, but he does it”, said Swissquote’s Ipek Ozkardeskaya. “Even with a $2.5bn China hit and $4.5bn in inventory charges, Nvidia still came in a billion dollars above Wall Street”.
Cracks under the surface?
But beneath the blowout results, questions are swirling on whether the firm’s resilience will last.
Forrester analyst Alvin Nguyen warned that prolonged trade uncertainty and rising AI infrastructure costs could dampen enterprise demand in the long run.
“Simplifying supply chains will help, but the cost picutre could slow investment if it drags on”, he said.
Analysts at TD Cowen hiked their price target on the stock to $175, calling the results “well above expectations” despite China headwinds.
They noted strong uptake of Nvidia’s systems among hyperscalers and said concerns on AI infrastructure scale are trading fast.
Still, they added, the looming shift to Nvidia’s ‘GB300’ series could become the next “wall of worry” for investors, along with broader fears of AI market saturation.
The AI boom rolls on
So far, it seems the AI gold rush shows no signs of slowing.
Nvidia’s full year revenue more than double to $130.5bn, with operating income of $81.5bn – a staggering 62.4 per cent margin.
But geopolitical pressure and a maturing AI market could slowdown the tech titan.
“Nvidia continues to defy gravity”, said Ozkardeskaya. “But gravity, eventually, always wins”.