Nvidia shares soar on higher profit and upbeat outlook

The chip designer expects its October quarter sales to jump 170%

Nvidia's revenue for the May-July period more than doubled to $13.5 billion. Getty Images

Shares of Nvidia rallied in after-hours trading on Wednesday after the company said profit increased more than nine-fold and it issued a bullish guidance for further growth on stronger demand for the chips it manufactures that are used to make artificial intelligence systems.

The company’s net profit in the fiscal second-quarter ending July 30 surged to about $6.2 billion, from $656 million in the same period a year earlier, Nvidia said in a statement on Wednesday.

Earnings per share jumped to $2.48, from 26 cents in the same period last year, while revenue more than doubled on an annual basis to $13.5 billion, exceeding Refinitiv's expectations of $11.2 billion.

It was the company’s first quarter with more than $10 billion in revenue.

Nvidia's stock price gained 3.17 per cent at market close on Wednesday to $471.16 a share. Shares jumped about 7 per cent in after-hours trading.

The Nasdaq-listed company's share price is up 229 per cent year-to-date. Nvidia's market value reached $1.16 trillion at the close of trading on Wednesday, positioning it firmly with Apple, Microsoft, Amazon and Alphabet – all of which have a 13-figure market cap.

“A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI [artificial intelligence],” said Jensen Huang, founder and chief executive of Nvidia.

The California-based company is now forecasting third-quarter revenue of about $16 billion, compared to $12.6 billion forecast by Refinitiv. Nvidia expects its third-quarter revenue to jump more than 170 per cent year-on-year.

Nvidia’s strong performance in the last quarter was driven by its data centre business that manufactures A100 and H100 AI chips, used to build and run generative AI technologies such as ChatGPT.

The second-quarter revenue in data centre division stood at record $10.3 billion, up 171 per cent on a yearly basis.

Nvidia designs and manufactures AI hardware and software graphics processing units for various industries. GPUs can process various tasks simultaneously, making them useful for machine learning, video editing and gaming applications.

The company’s gaming unit added nearly $2.5 billion, up 22 per cent from a year ago quarter, in the May-July period.

Nvidia’s professional visualisation and automotive units added $379 million (down 24 per cent) and $253 million (up 15 per cent), respectively, in the previous quarter.

Jensen Huang, chief executive and founder of Nvidia. Reuters

Nvidia, which has been one of the biggest beneficiaries of the AI boom, invested $2 billion in research and development in the last quarter, almost 11.8 per cent more than the prior year period.

This was more than 15.1 per cent of the total revenue earned during the quarter.

Nvidia is “perfectly poised” to keep benefiting from the rally in AI adoption, Thomas Monteiro, senior analyst at Investing.com, told The National.

“Main message here is that a huge number of big companies worldwide are actually willing to bet their futures on AI, and they will have to do so with Nvidia chips if they don't want to fall behind the competition … if this trend is to persist, we are talking about a very interesting valuation for Nvidia,” Mr Monteiro said.

Nvidia’s chief financial officer Colette Kress said that the company would not be instantly affected by the US government’s planned restrictions on chip exports.

“Given the strength of demand for our products worldwide, we do not anticipate that additional export restrictions on our data centre GPUs if adopted would have an immediate material impact to our financial results,” Ms Kress said during a call with analysts.

A cryptocurrency mining rig equipped with Nvidia GPU at the Thailand Crypto Expo 2022 in Bangkok. Bloomberg

During the last quarter, Nvidia returned nearly $3.4 billion to shareholders in the form of 7.5 million shares repurchased for $3.28 billion and cash dividends. As of July 30, the company had $3.9 billion remaining under its share repurchase authorisation programme.

On Monday, Nvidia’s board of directors also approved an additional $25 billion in share repurchases, without expiration.

Market analysts are still optimistic on Nvidia.

“The relative valuation of Nvidia has expanded on the high side where its forward price-to-earnings ratio stands at 44 times versus 17.6 times seen in the S&P 500 … Nvidia now faces a higher bar of overcoming such highly optimistic expectations than before,” said Kelvin Wong, senior market analyst for Asia Pacific at Oanda.

“The broader US semiconductor sector represented by the SPDR S&P Semiconductor equal-weighted exchange-traded fund has continued to underperform against Nvidia since August 2 as its price actions remained below its downward sloping 50-day moving average.”

In June, Oracle chairman Larry Ellison said the company was buying billions of dollars' worth of Nvidia chips to strengthen its position in generative AI and cloud computing.

More orders are expected, but if this is any indication, Nvidia is set to maintain its lead in the now hotly contested market.