Nvidia (NASDAQ:NVDA) is set to release its third-quarter earnings after the closing of the US markets on November 21. The company’s stock has surged by approximately 245% year-to-date, fueled by its prominent role in the AI boom. Nvidia’s cutting-edge GPUs, particularly in the realm of generative AI training, have been a significant contributing factor to its success. With the global AI race showing no signs of slowing down, the company’s business growth momentum is anticipated to persist.
Review of Q2 Performance
In the second quarter of fiscal year 2024, Nvidia experienced a notable acceleration in revenue growth, marking an 88% increase from the previous quarter and an impressive 101% surge from the same period the previous year. Earnings per share witnessed a remarkable 429% jump during the same quarter, propelling the gross margin to 71% in fiscal year 2023. This outstanding performance was primarily attributed to a substantial 171% increase in sales from its data center division, constituting 76% of the company’s overall revenue for the second quarter.
The gaming center’s revenue, the second-largest division, recorded a 22% year-over-year growth, returning to positive territory for the first time since the first quarter of 2023. Notably, the gaming division had been the primary contributor to Nvidia’s business growth during the pandemic lockdowns in 2021 and 2022, representing 18% of the overall revenue. While other divisions, such as professional visualization and Automotive, experienced a slowdown, their smaller proportions mitigated any significant impact on the overall business. Nvidia has issued guidance for its third-quarter revenue at $16 billion, reflecting a year-on-year growth of 170%.
Focus on Business Growth
Nvidia’s AI chip sales continue to play a pivotal role in shaping its performance in the third quarter. Major tech players in both the US and China, including Alphabet, Amazon, Meta, Alibaba, Baidu, Tencent, and ByteDance, have actively stocked up on Nvidia’s A100, H100, and H800 GPUs. Despite export restrictions imposed by the Biden administration, Chinese tech companies have embraced Nvidia’s latest design-for-China AI chips. Tencent, for instance, confirmed an inventory of Nvidia’s H800 chips for at least a couple of generations during its third-quarter earnings call. Other Chinese companies, such as Kuaishou Technology, have also accumulated significant quantities of A800 chips. In August, Chinese tech firms collectively purchased $5 billion worth of Nvidia’s A800 GPUs. Nvidia’s recent introduction of the H200 AI chips, promising double the speed of the H100, positions the company to compete with AMD’s MI300X GPU.
Anticipation for Nvidia’s gaming division improvement is high, driven by the integration of AI. In May, the company unveiled the NVIDIA Avatar Cloud Engine (ACE) for Games, a custom AI model foundry service designed to infuse intelligence into non-playable characters (NPCs) through AI-powered natural language interactions. This strategic move may contribute to renewed traction in Nvidia’s gaming business.
Q3 Forecast by Bloomberg
Bloomberg’s projections for the third quarter are as follows:
Earnings per share: $3.35, representing a remarkable 478% annual increase.
Revenue: $16.04 billion, reflecting a substantial 170% annual growth.
Data Center Revenue: $12.73 billion, showing an impressive 232% annual increase.
Gaming Center Revenue: $2.70 billion, with a notable 71% annual growth.
Gross Margin: 72%, indicating a significant 29% annual uptick.
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