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Earnings preview: Can Nvidia amaze markets with its AI chip sales?

Nvidia

Nvidia is slated to report its second-quarter earnings after the US markets closing bell on 24 August (APAC time). The company’s shares rebounded more than 200% this year after a brutal 2022 and it topped a $1 trillion market cap in late May. Morgan Stanley’s “Top Pick” comments on Nvidia’s stocks sparked a sharp rebound of 7% on 14 August and consolidated its trillion-dollar market value. With the AI industry booming, its GPU demands surging in an undersupplied market could boost the company’s data center revenue significantly. Will the chipmaker amaze investors with a breathtaking result? Below are the aspects that investors need to focus on.

Q1 review

Nvidia beat the market’s expectations in its first-quarter results for fiscal 2024 and provided strong guidance for the second quarter. Shares jumped 26% on the day following the report. The company’s earnings per share were $1.09 on revenue of $7.19 billion, topping estimates of $0.92 and $6.25 billion, respectively. Its overall sales revenue rose 19% sequentially but fell 13% from a year earlier. Nvidia expected sales of about $11 billion, plus or minus 2%, for the second quarter, exceeding the market’s expectations by more than 50%.

Nvidia’s data center sales grew by 14% year on year to $4.28 billion, driven by strong demands for its GPU chips from cloud vendors, including Amazon Web Services, Google Cloud, Microsoft Azure, and Oracle Cloud Infrastructure. Nvidia also partners with internet companies to develop their generative AI technology.

At the same time, Nvidia’s gaming center extended an annual decline in the first quarter, with its revenue down 38% from a year ago to $2.24 billion, but up 22% from the previous quarter.  

In other divisions, the automotive segment was seen a jump of 114% in revenue growth to $296 million, and BYD will extend its NVIDIA DRIVE Orin across new models.  

Business growing focus

The data center’s performance remains focused in Nvidia’s upcoming earnings report and the GPU sales will be a main driver for growth. Nivida is reported to have received orders of its A800 GPU worth $5 billion from Chinese tech giants, including Baidu, ByteDance, Tencent, and Alibaba, amid fears of the new export restrictions by the Biden administration. Saudi Arabia and the United Arab Emirates are also purchasing thousands of Nvidia’s AI chips to join the global AI race, according to Financial Times. Elon Musk also said Tesla had strong demands for Nvidia’s chips to power its self-driving training system. The chipmaker is reportedly to ship about 550,000 of its latest H100 chips globally in 2023.

At the same time, Nvidia’s gaming center may see further slowdown due to weakened demand. And the automotive segment may soften growth on the tepid Chinese EV market.

Nvidia’s gross margin will also be key matrix in the result as increased investments in data center may weigh on profit, but its GPU sales will likely keep the margin at a healthy level.

Q2 forecast by Bloomberg

Earnings per share: $2.07, + 400% annually

Revenue: $11.038 billion, + 70% annually

Operating profit: $5.899 billion

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