Nvidia’s upbeat forecast soothes fears of AI spending bubble

[NEW YORK] Nvidia Corp, the world’s most valuable company, gave a strong revenue forecast for the current period, helping counter concern that a global surge in AI spending is poised to fizzle.

Sales will be about US$65 billion in the fiscal fourth quarter, which runs through January, the chipmaker said in a statement on Wednesday. Analysts had estimated US$62 billion on average, with some predictions ranging as high as US$75 billion. 

The outlook signals that demand remains strong for Nvidia’s artificial intelligence accelerators, the pricey and powerful chips used to develop AI models. Nvidia has faced growing fears that the runaway spending on such equipment isn’t sustainable.

“Compute demand keeps accelerating,” chief executive officer Jensen Huang said in the statement. “AI is going everywhere, doing everything, all at once.”

Nvidia shares gained about 5 per cent in late trading after the report was released. They had been up 39 per cent this year through the close.

Nvidia results have become a barometer for the health of the AI industry, and the news lifted a variety of related stocks. CoreWeave, a provider of AI computing, gained more than 10 per cent in extended trading. Its peer Nebius Group climbed more than 8 per cent.

“Markets are reacting very positively to the news that there is no slack in AI momentum,” Brian Mulberry, senior client portfolio manager at Zacks Investment Management, said in a note. His firm owns Nvidia shares. “Demand for Nvidia hardware solutions remains strong,” he said.

Huang has repeatedly downplayed concerns about an AI bubble, saying last month that the company has more than US$500 billion of revenue coming over the next few quarters. Owners of large data centres will continue to spend on new gear because AI has begun to pay off, he said.

Revenue rose 62 per cent to US$57 billion in the fiscal third quarter, which ended Oct 26. Profit was US$1.30 a share. Analysts had predicted sales of US$55.2 billion and earnings of US$1.26 a share.

Nvidia’s main data centre unit had revenue of US$51.2 billion in the quarter, compared with an average estimate of US$49.3 billion. Chips used in gaming PCs – once the company’s chief source of revenue – delivered sales of US$4.3 billion. That compares with an average estimate of US$4.4 billion. 

The forecast for the latest quarter reflects a staggering run for the company. Sales will be up about 10-fold from where they were in the same period just three years ago. And Nvidia is on course to deliver more annual net income than two longtime rivals – Intel and Advanced Micro Devices – will report in sales.

But Nvidia’s expansion has faced challenges. US restrictions on the shipment of advanced chips to China have largely locked Nvidia out of a massive market for its products.

Huang has lobbied Washington to overturn those rules – arguing that they’re counterproductive to the national security concerns they’re meant to serve. But even after some rollback of the toughest elements, Nvidia isn’t currently projecting any sales from AI accelerators in China. 

Some investors also have expressed concerns about the structure of the megadeals that Nvidia has struck with customers. The transactions involve investments in startups such as OpenAI and Anthropic PBC, raising the issue of whether the pacts are creating artificial demand for computers. 

Earlier this week, Nvidia and customer Microsoft said they’ve committed to invest as much as US$15 billion in Anthropic. The startup has also pledged to purchase US$30 billion of computing capacity from Microsoft’s Azure cloud service and will work with Nvidia’s engineers on fine-tuning chips and AI models. 

Meanwhile, some of Nvidia rivals have grown more optimistic that they can finally challenge the company’s dominance in AI accelerators. Earlier this month, Advanced Micro Devices Inc. predicted accelerating growth for its AI chip business and talked up the prospects for forthcoming products. 

AMD, Broadcom Inc. and Qualcomm have all announced tie-ups with large users of Nvidia’s chips. And data centre operators are increasingly looking to use more in-house designs – an effort that would make them less dependent on Nvidia supply.

But Huang is also pushing to spread the use of AI across more of the worldwide economy. The CEO has embarked on a globe-trotting tour to persuade government bodies and corporations to deploy his technology. 

Nvidia, founded in 1993, pioneered the market for graphics chips used to create realistic images for computer games. AMD is its only remaining major rival in that business.

Nvidia built its AI dominance by adapting that same chip architecture to crunch massive amounts of data – helping researchers create software that’s begun to rival and resemble human capabilities. 

The Santa Clara, California-based company still has more than 90 per cent of the market for AI accelerator chips. It’s added other products to that lineup to help solidify its edge, including networking, software and other services. BLOOMBERG