Nvidia Overcomes AI Chip Restrictions in China with Strong Data Center Growth

NVidia announced mixed earnings for the October fiscal quarter of 2023 with sales beating analyst expectations but earnings per share lower than forecast. Nvidia said it expected $6 billion in sales in the fourth quarter, lower than consensus estimates of $6.09 billion $NVDA Shares got relief from Gaming beating expectations and Data Center revenue $3.83 billion, up 31% year-over-year. Nvidia said reduced sales from the GPUs banned in China would be largely offset by its alternative products like Automotive.

NVidia GeoForce

AI chip restrictions in China will undoubtedly be pointed to as a major Q3 headwind, although Bank of America thinks NVDA was able to partially fulfill customer demand by using lower-spec Ampere products, perhaps even leveraging existing inventory. Traders will be closely watching the Q4 revenue guidance from the chipmaker. The guidance could show a sequential improvement even with year-over-year growth still in negative territory.

Nvidia Q3 2023 Earnings

NVidia segments in game graphics and artificial intelligence (AI) chips saw huge growth in 2020 and 2021 during the pandemic, but now slowing down in gaming with inflation and back to work and school affects.

Highlights

  • GAAP Adj EPS: 27 cents, down 72% from a year ago and up 4% from the previous quarter.
  • Non-GAAP Adj EPS: $0.58 (exp $0.70) down 50% from a year ago and up 14% from the previous quarter.
  • Revenue: $5.93B (exp $5.79B) down 17% on a year-on-year basis.
  • Gaming revenue $1.57B (exp $1.32B)
  • Data center revenue $3.83B, +30% y/y, est $3.79B
  • Professional visualization fell 65% on an annual basis to $200 million.
  • Automotive grew 86% to $251 million in sales
  • Gross margin down 11.6 percentage points to 53.6%, NVDA attributed to taking an inventory charge because of low demand for data center chips in China.
  • Outlook Q4 Revenue $6.0B Or -2% (exp $6.09B)
  • $3.75 billion on share repurchases and dividends during the quarter.

NVDA Stock Market Reaction

  • $162.81 ▲ +3.71 (+2.33%) After hours
  • $159.10 ▼ -142.93 (-47.32%) past year
  • $159.10 ▲ +106.26 (+201.1%) past 5 years

What’s New:

  • Gaming In the quarter Nvidia launched GeForce RTX 4090, the first Ada Lovelace architecture GPU for gamers and creators, which quickly sold out in many locations. Sales began today of the RTX 4080.
  • Data Nvidia began shipping its H100 Tensor Core GPU based on the new Nvidia Hopper architecture in the quarter, with first systems available now.
  • Visualization During the quarter, NVida introduced Omniverse Cloud, the company’s first software- and infrastructure-as-a-service offering, with a comprehensive suite of cloud services for artists, developers and enterprise teams to access metaverse applications.
  • Automotive and embedded During the quarter, Nvidia’s customers launched the all-electric Volvo EX90, powered by Nvidia Drive Orin and Xavier, and Polestar 3, the brand’s first SUV, which runs on the Nvidia Drive platform.

“We are quickly adapting to the macro environment, correcting inventory levels and paving the way for new products,” said Jensen Huang, founder and CEO of Nvidia, in a statement. “The ramp of our new platforms ― Ada Lovelace RTX graphics, Hopper AI computing, BlueField and Quantum networking, Orin for autonomous vehicles and robotics, and Omniverse ― is off to a great start and forms the foundation of our next phase of growth.”

China

Nvidia warned in August that it would be hit by U.S. export controls that prevent some of its fast artificial intelligence chips from being sold to Chinese companies. In November, it revealed a new chip that is designed to meet the U.S. export rules.

Nvidia said that the reduced sales from the GPUs banned in China would be largely offset by its alternative products.

Crypto

With the collapse of FTX NVidia said it is unable to determine what impact slipping demand for crypto mining had on the lower revenues, but that may have been a drag as well.

Outlook

  • Revenue is expected to be $6.00 billion, plus or minus 2%.
  • GAAP and non-GAAP gross margins are expected to recover to 63.2% and 66.0%, respectively, plus or minus 50 basis points.
  • GAAP and non-GAAP operating expenses are expected to be approximately $2.56 billion and $1.78 billion, respectively.
  • GAAP and non-GAAP other income and expenses are expected to be an income of approximately $40 million, excluding gains and losses from non-affiliated investments.
  • GAAP and non-GAAP tax rates are expected to be 9.0%, plus or minus 1%, excluding any discrete items.

“Nvidia’s pioneering work in accelerated computing is more vital than ever. Limited by physics, general-purpose computing has slowed to a crawl, just as AI demands more computing. Accelerated computing lets companies achieve orders-of-magnitude increases in productivity while saving money and the environment.” Jensen Huang, founder and CEO of Nvidia,

Source: NVidia, AlphaStreet

From The TradersCommunity Research Desk