Amid exports restrictions on AI chips introduced by the US government, Nvidia expects a slowdown in the revenue growth in the ongoing Q4 quarter leading to a selling pressure on its stock.
Investors in Nvidia Corp (NASDAQ: NVDA) displayed a measured response to its recent quarterly (Q3 2024) report, which exceeded the average analysts’ estimates but fell short of the heightened expectations from shareholders heavily invested in the artificial intelligence (AI) boom.
Nvidia (NVDA) has released Q3 results that significantly exceeded Wall Street expectations. The chipmaker reported adjusted earnings of $4.02 per share, surpassing the anticipated $3.36. The revenue of $18.12 billion exceeded the estimated $16.09 billion, marking a remarkable 206% increase compared to the same period last year.
However, the company anticipates a negative impact in the upcoming quarter due to export restrictions that will affect sales to organizations in China and other countries. Nvidia expects the Q4 revenue to be approximately $20 billion. While this surpassed the average Wall Street prediction of $17.9 billion, some projections had reached as high as $21 billion.
Well, the slow growth projections led to the NVIDIA stock falling by an additional 1.74% in the after-hours. In a letter to shareholders, Nvidia’s finance chief, Colette Kress wrote:
“We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.”
During a conference call with analysts, Kress stated that Nvidia is collaborating with clients in the Middle East and China to secure US government licenses for the sale of high-performance products. Although Nvidia is striving to create new data center products that align with government policies and do not necessitate licenses, Kress expressed skepticism about their significance in the fiscal fourth quarter.
A Breakdown of Nvidia’s Revenue in Fiscal Q3 2024
Nvidia’s CEO, Jensen Huang, has leveraged expertise in graphics chips to lead in accelerated computing, particularly in training AI services. The company’s processors, renowned for parallel calculations that enhance data processing, are widely adopted for AI training.
In the recent quarter, data center revenue surged to $14.51 billion, surpassing StreetAccount’s consensus of $12.97 billion, with cloud infrastructure providers like Amazon contributing half of the revenue. Notably, Nvidia observed robust demand from GPU-renting clouds, contributing to healthy uptake. The gaming segment also performed well, generating $2.86 billion, an 81% increase from the StreetAccount consensus of $2.68 billion.
Nvidia introduced the GH200 GPU with increased memory and an additional Arm processor, targeting demand for such high-performance GPUs, exemplified by a $10 million purchase from Iris Energy for 248 H100s. Nvidia announced plans to introduce computing instances based on GH GPUs in Oracle’s cloud.
In the upcoming quarter, Advanced Micro Devices Inc (AMD) is set to introduce a rival to Nvidia known as the MI300. Despite this, analysts continue to stay optimistic about NVIDIA. The demand for GPUs remains higher than the available supply as the adoption of Gen AI expands across various industry sectors, according to a note from Raymond James analysts Srini Pajjuri and Jacob Silverman. They recommended a “strong buy” on Nvidia stock, expressing confidence in Nvidia’s ability to maintain a share of over 85% in Gen AI accelerators, even in 2024.
