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Earnings preview for Nvidia

Nvidia

Nvidia will report its third-quarter earnings after the US markets close on 21 November, which is the morning time of the Asia Pacific time on 22 November. The company’s shares soared about 233% year-to-date as the chipmaker benefited the most from the AI boom this year, thanks to its most advanced GPUs that are being used for generative AI training. The business growth momentum is expected to continue, considering no signs of a slowdown in the worldwide AI race.

Q2 review

Nvidia’s revenue growth accelerated in the second quarter of the fiscal year 2024, up 88% from the first quarter and 101% from a year ago. Its earnings per share soared 429% from the same quarter, boosting the gross margin to 71% in fiscal year 2023. The jaw-dropping result was mostly due to a 171% jump in its data center’s sales, which accounted for 76% of its overall revenue in the second quarter. The second biggest division, the gaming center’s revenue, rose 22% year over year, returning to growth for the first time since the first quarter of 2023. It is worth noting that the gaming division used to be the biggest contributor to Nvidia’s business growth during the pandemic lockdowns in 2021 and 2022. The segment represented 18% of its overall revenue. In other divisions, the professional visualization and Automotive all slowed, but it did not have a major impact on the businesses due to their small proportions. Nvidia provided guidance for its third-quarter revenue at $16 billion or a year-on-year growth of 170%.

Business growing focus

Nvidia’s AI chip sales remain a key element that determines its third-quarter performance. Both the US and China’s major tech players have stockpiled Nvidia’s A100, H100, and H800 GPUs, including Alphabet, Amazon, Meta, Alibaba, Baidu, Tencent, and ByteDance. According to Jon Peddie Research, Nvidia’s discrete GPU shipments accounted for 87% of the whole market share in the second quarter, followed by 10% of AMD and 3% of Intel. Despite the Biden administration’s restrictions on its exports to China, Chinese tech companies have already piled into the latest design-for-China AI chips. Tencent said that it had an inventory of Nvidia’s H800 chips for at least another couple of generations at its third-quarter earnings call. Other Chinese companies, such as Kuaishou Technology, have also stockpiled 10,000 A800 chips. In August, the combined Chinese tech companies purchased $5 billion worth of Nvidia’s A800 GPUs, according to Financial Times. Nvidia has recently unveiled its newly designed H200 AI chips, which will generate output twice the speed as the H100, according to a test on Meta’s Liama 2 Large Language Model (LLM). The new GPU is designed to compete with AMD’s MI300X GPU.

Nvidia’s gaming division is also expected to see further improvement with its AI integration. In May, Nvidia announced NVIDIA Avatar Cloud Engine (ACE) for Games, which is “a custom AI model foundry service that transforms games by bringing intelligence to non-playable characters (NPCs) through AI-powered natural language interactions. “ This may help Nvidia to gain renewed tractions of its gaming business.

Q3 forecast by Bloomberg

Earnings per share: $3.35, + 478% annually

Revenue: $16.04 billion, + 170% annually

Data Center Revenue: $12.73 billion, + 232% annually

Gaming Center Revenue: $2.70 billion, + 71% annually

Gross Margin: 72%, +29% annually


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