NVIDIA rides the generative AI boom with 265% rise in revenues. Can this last?

Stuart Lauchlan Profile picture for user slauchlan February 22, 2024
Summary:
A blow-out quarter for the chipmaker as platform shifts boost its prospects.

Nvidia CEO Jensen Huang shows off the V100
Jensen Huang

AI poster-child NVIDIA’s boom period continues as it smashes past Wall Street expectations with its most recent quarter and predicts a threefold increase in quarterly sales. But all the success comes at a price with CEO Jensen Huang warning that the company can’t “reasonably” meet demand in the short term as it ramps up production: 

With all of the new products, demand is greater than supply. And that's just kind of the nature of new products and so we work as fast as we can to capture the demand. But overall, overall net-net, overall, our supply is increasing very nicely.

The chipmaker, which passed Amazon and Google in market capitalization at one point last week, just turned in Q4 numbers with revenue of $22.1 billion, up 265% year-on-year, and a profit of $12.3 billion. Revenue from data centers was up more than 400% from the same period last year, reaching $18.4 billion. For the full year, revenue came in at $60.9 billion. 

China syndrome

All of this came through despite a hefty drop off in sales in China following beefed-up US export controls that were imposed during the quarter. Huang said: 

Remember, the US government wants to limit the latest capabilities of NVIDIA's accelerated computing and AI to the Chinese market. And the US Government would like to see us be as successful in China as possible. Within those two constraints, within those two pillars if you will, are the restrictions, and so we had to pause when the new restrictions came out. We immediately paused so that we understood what the restrictions are, re-configured our products in a way that is not software-hackable in any way. And that took some time. And so we re-set our product offering to China and now we're sampling to customers in China.

We're going to do our best to compete in that marketplace and succeed in that marketplace within the specifications of the restriction. And so that's it. This last quarter our business significantly declined as we paused in the marketplace. We stopped shipping in the marketplace. We expect this quarter to be about the same. But after that, hopefully we can go compete for our business and do our best, and we'll see how it turns out.

Tipping point

Overall  it's a tipping point time for the company and for AI, according to Huang: 

As Moore's Law slows while computing demand continues to skyrocket, companies may accelerate every workload possible to drive future improvement in performance, TCO and energy efficiency. At the same time, companies have started to build the next generation of modern data centers, what we refer to as AI factories, purpose-built to refine raw data and produce valuable intelligence in the era of generative AI.

The computer industry is making two simultaneous platform shifts at the same time, he argued:

The trillion-dollar installed base of data centers is transitioning from general purpose to accelerated computing. Every data center will be accelerated so the world can keep up with the computing demand, with increasing throughput, while managing costs and energy. The incredible speed up that NVIDIA enabled, a whole new computing paradigm, generative AI, where software can learn, understand and generate any information from human language to the structure of biology and the 3D world.

We are now at the beginning of a new industry where AI-dedicated data centers process massive raw data to refine it into digital intelligence. Like AC power generation plants of the last industrial revolution, NVIDIA AI supercomputers are essentially AI generation factories of this Industrial Revolution. Every company in every industry is fundamentally built on their proprietary business intelligence, and in the future, their proprietary generative AI.

This has a knock-on beneficial effect, he suggested: 

Generative AI has kicked off a whole new investment cycle to build the next trillion dollars of infrastructure of AI generation factories. We believe these two trends will drive a doubling of the world's data center infrastructure installed base in the next five years and will represent an annual market opportunity in the hundreds of billions. This new AI infrastructure will open up a whole new world of applications not possible today. We started the AI journey with the hyperscale cloud providers and consumer internet companies. And now, every industry is on board, from automotive to healthcare to financial services, to industrial to telecom, media and entertainment.

Customers

Large cloud providers represented more than half of NVIDIA’s data center revenue in the quarter, fueled by both internal workload needs and external public cloud customers, while consumer internet company make up another large category, according to Huang: 

Companies from search to e-commerce, social media, news and video services and entertainment are using AI for deep learning-based recommendation systems. These AI investments are generating a strong return by improving customer engagement, ad conversation and click-throughs rates. Meta in its latest quarter cited more accurate predictions and improved advertiser performance as contributing to the significant acceleration in its revenue. In addition, consumer internet companies are investing in generative AI to support content creators, advertisers and customers through automation tools for content and ad creation, online product descriptions and AI shopping assistance.

Elsewhere enterprise clients are applying generative AI to help customers realize productivity gains, he said: 

Early customers we've partnered with for both training and inference of generative AI are already seeing notable commercial success. ServiceNow's generative AI products in their latest quarter drove their largest ever net new annual contract value contribution of any new product family release. We are working with many other leading AI and enterprise software platforms as well, including Adobe, Databricks, Getty Images, SAP and Snowflake.

My take

Just ridiculously strong numbers. How long can this last? That's inevitably the question lurking at the back of mind of many on Wall Street. There will be slowing down of growth rates at some point inevitably. How the short termist thinkers react to that remains to be seen. But that's not likely to be an issue facing NVIDIA in the near term.

Loading
A grey colored placeholder image