Nvidia (NVDA -3.33%) stock has been on a tear since the launch of OpenAI's ChatGPT last year, and it's starting to make sense. Companies large and small are scrambling to buy high-powered chips to train large language models and recommendation systems.
The booming demand led Nvidia to exceed analysts' revenue estimates, and next quarter's guidance crushed expectations on Wall Street.
Nvidia reported first-quarter revenue of $7.2 billion, compared to estimates of $6.5 billion. But the shocker was management's second-quarter guidance, calling for $11 billion in revenue, 53% higher than the consensus estimate.
The stock was up 25% Thursday morning, hitting a new all-time high following the earnings release on Wednesday, May 24.
The company's 19% sequential increase in revenue over the previous quarter was impressive and shows that Nvidia is perfectly positioned to capitalize on the artificial intelligence (AI) opportunity. Here's a deeper look at the quarter and what it means for investors.
The data center shines again
Here's how Nvidia performed across its various business segments.
Non-GAAP (adjusted) revenue and net income fell 13% and 21%, respectively, over the year-ago quarter. While the decline doesn't seem to support the jump in the stock price, investors are more focused on the sequential increase in revenue over the previous quarter.
Smaller segments, such as professional visualization, automotive, original equipment manufacturing, and other, reported mixed results, while the two largest revenue sources are showing a strong recovery underway. Data center revenue grew 14% year over year, driven by exponential growth in computing requirements for AI applications.
Meanwhile, the gaming segment, which had suffered lower demand during the spike in inflation last year, saw revenue fall 38% over the year-ago quarter. However, gaming jumped 22% over the previous quarter, reflecting strong demand for the latest releases in the GeForce RTX 40 series of gaming chips for desktops and laptops. This could point to a recovery for this important segment on the horizon.
To further fuel investors' optimism, management provided bullish commentary on the earnings call that signals Nvidia is poised to have a banner year.
The next industrial revolution is underway
Nvidia guided for next quarter's revenue to be within 2% of $11 billion, up 64% over the year-ago quarter's $6.7 billion of revenue. This increase is expected to be driven by "a steep increase in demand related to generative AI and large language models," as CFO Colette Kress explained on the call.
Most importantly, Kress noted that the surging demand for AI-generative applications extends the visibility of the data center's revenue out a few quarters. Investors not only look for strong demand for a company's products, but just as importantly, a predictable path to more growth.
Moreover, CEO Jensen Huang's statement in the press release suggests this is the beginning of the next industrial revolution.
"A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process," Huang said.
Huang also noted Nvidia is at the center of a colossal shift in where businesses are investing for the future. Nvidia is still benefiting from the ongoing investment in accelerated computing, which is the backbone of cloud services. But it's also now benefiting from the ramp-up in investment to train computers to engage in natural conversation, like ChatGPT.
As you can imagine, training a computer to chat with you, intelligently, will require a tremendous amount of computing power. And natural language processing is just a single use case. The ways businesses will use AI are still evolving, which promises many more use cases to emerge over time.
Nvidia is defying expectations... again
What this means is a lot of growth for Nvidia's data center business -- perhaps more than anyone realizes, as noted by the stock's performance. Nvidia has many different products to meet the needs of AI start-ups and large companies. To meet surging demand, Nvidia is in the process of ramping up supply of its H100 graphics processing units (GPUs), the Grace central processing units (CPUs) designed for data centers, and BlueField-3 data processing units (DPUs).
The stock looks expensive, but you won't find another large-cap company expecting revenue to accelerate to this degree. Nvidia remains a top AI stock to keep on your radar.
