Nvidia Corp. experienced a surge in share prices during after-hours trading on Wednesday, as it revealed that its AI software will now be accessible on several cloud computing offerings, including Microsoft Corp.’s, Alphabet Inc.’s, and Oracle Corp.’s services. This move towards artificial intelligence represents a focus on opportunities in high-margin data center applications, according to the graphics-chip specialist’s founder and CEO, Jensen Huang, during a conference call on Wednesday afternoon.
AI and High-Margin Data Center Applications
Nvidia’s focus on AI and high-margin data center applications could prove to be the catalyst for future growth. The shift in focus to AI is timely, as interest in this technology is surging due to a new wave of hype, sparked by the ChatGPT chatbot. Microsoft Corp. recently invested in OpenAI, the startup behind ChatGPT, and is rolling out new services using the technology.
The company’s CFO, Colette Kress, announced that Nvidia’s software brings in “hundreds of millions” of dollars in revenue, and its software segment is “getting stronger”. Currently, Nvidia doesn’t break down its software revenue, but as the segment grows, Kress said they could do so in the future.
Forecast and Q4 Performance
Nvidia had faced inventory issues over the past two quarters, which led to significant declines in sales and revenue during the fiscal fourth quarter. However, the company’s focus on AI has allowed it to turn the page from these issues. Kress said that data center sales are expected to grow sequentially and year over year, “accelerating past Q1.”
Nvidia has forecasted first-quarter revenue of $6.37 billion to $6.63 billion, with adjusted gross margins for the fourth quarter coming in at 66.1%, up sequentially from 56.1% during the inventory drawdown, and Nvidia expects gross margins of 66% to 67% for the first quarter.
During the fourth quarter, Nvidia’s net income was $1.41 billion, or 57 cents a share, compared with $3 billion, or $1.18 a share, during the same period in the previous year. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 88 cents a share, compared with $1.32 a share during the same period in the previous year. Revenue fell to $6.05 billion from $7.64 billion during the same quarter in the previous year.
Data center sales rose 11% to $3.62 billion from a year ago, but this missed analysts’ average forecast of $3.85 billion. Nvidia’s data center business has been the main driver for the stock in recent years, but a recent slowdown in cloud computing has raised concerns about the near-term growth of the business.
Gaming sales reached $1.83 billion, exceeding the $1.59 billion analysts had predicted. Nvidia’s gaming business may receive a boost from a recent deal with Microsoft, which is trying to close a $69 billion acquisition of Activision Blizzard Inc. Despite a decline of about 12% in Nvidia’s share prices over the past year,
Nvidia’s focus on AI and high-margin data center applications is expected to help the company in its future growth. Its AI software is now accessible on several cloud computing offerings, including Microsoft, Alphabet, and Oracle services. The company’s CFO announced that Nvidia’s software brings in “hundreds of millions” of dollars in revenue, and its software segment is “getting stronger”.