NVIDIA’s quarterly earnings beat estimates once again. According to CEO Jensen Huang, artificial intelligence reached a crucial tipping point.
NVIDIA poster widely better-than-expected quarterly earnings on Wednesday, confirming its position as the best-performing company in the world. Pre-market estimates show a 12.37% increase in NVDA stock price on Thursday.
The chip-making company reported a whopping 265% increase in year-to-year revenues. The absolute figure came in at $22.10 billion compared to $20.62 billion. For the entire year 2023, NVIDIA revenues amounted to $60.9 billion, more than doubling 2022’s turnover.
Earnings-per-share came in at $5.16 compared to the $4.64 expected. NVIDIA expects Q1 revenues to jump by 233%, more than market estimates.
In early 2024, NVIDIA managed to beat tech giants Amazon and Alphabet (Google) in terms of market capitalization. Before yesterday’s earnings, however, it slipped again below its “Magnificent” peers.
The main driver of NVIDIA’s astonishing growth is its first-mover position in the AI chip market. According to Technalysis Research’s Bob O’Donnell, AI entered its mainstream phase in 2023.
“Global spending on data center AI chips tripled in 2023 from $15 billion to $45 billion and is now set to double again to $90 billion in 2024,” New Street Research Technology Infrastructure analyst Antoine Chkaiban said. “And if we look out a few years, well late last year, Lisa Su CEO of AMD (AMD) pitched a target addressable market for data center AI chips of $400 billion in 2027.”
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A tipping point
At the moment, NVIDIA controls 80% of the AI chip market. Other chipmakers including AMD and Intel are seemingly outside the competition, leaving NVIDIA with no meaningful challenger in this new market.
OpenAI’s CEO Sam Altman is reportedly seeking $7 trillion in funding to create its own AI chipmaking company. Whether he succeeds or not, NVIDIA’s position in the industry will hardly be shattered overnight.
NVIDIA’s CEO Jensen Huang believes AI reached a “tipping point”. “Demand is surging worldwide across companies, industries, and nations,” Huang said.
For the future, the main challenge NVIDIA has to face is the US-China trade war resurging. US Commerce Secretary Gina Raimondo imposed significant restrictions on chip exports to China, as the Biden administration wishes to bring the semiconductor industry inside the borders.
While NVIDIA always managed to go around restrictions, they have become stricter and stricter. China is NVIDIA’s second-largest market, as well as the world’s second-largest economy.
The bulk of NVIDIA’s manufacturing is in Taiwan, a breakaway rebel nation according to Beijing. If tensions were to rise even further in that area, NVIDIA’s business may be seriously hampered. A much more concrete threat than any of Altman’s long-cherished dreams.
