There are surprises in the earnings reports — and then there’s what chipmaker Nvidia announced after the market closed on Wednesday.
The chipmaker has forecast sales of $11 billion in the next quarter, more than 50% more than analysts expected. The rosy forecast sent shares of the chip maker up nearly 25% in the extended trading period.
The increase will boost Nvidia’s market value to more than $940 billion, compared to $755 billion at market close. That’s twice as much as the leading chipmaker Taiwan Semiconductor Manufacturing Company, and three times more than the Korean electronics giant Samsung Electronics. Nvidia is now approaching the $1 trillion market capitalization threshold held by just four other US companies: Apple, Microsoft, Alphabet, and Amazon.
“We are seeing incredible demands to retool global data centers,” CEO Jensen Huang said on a call with analysts, predicting that companies will upgrade $1 trillion worth of data centers to become AI-capable.
Nvidia reported profits of $7.1 billion for the most recent quarter, down 13% year-over-year, yet still beating expectations. Data center revenue, which corresponds to Nvidia chips used in machine learning and artificial intelligence, reached a record $4.28 billion.
Nvidia shares are now at a record high, surpassing their previous peak from November 2021, which occurred during a chip shortage. Stocks have pulled back from those highs last year when a chip shortage turned into a chip glut. Retailers stockpiled excess inventory and post-pandemic consumers bought fewer electronics, driving up demand for chips.
This correction in the electronics market can still be seen in Nvidia’s earnings, as the company reported a 38% year-over-year decline in its gaming division.
* Massive damage
Still, while Huang was effusive with the analysts, he was much calmer in another context yesterday.
In an interview with financial timesAnd The Nvidia CEO has highlighted a major threat to Nvidia and the broader US chip industry: the Biden administration’s export controls on sales to China. Huang argued that the new US measures were forcing Nvidia and its peers to operate “with our hands tied behind our backs”.
The United States restricts the sale of chips and chipmaking equipment to China to maintain its advantage in key technologies, including artificial intelligence. The government has asked Nvidia to stop selling some of its chips to China to ensure they are not diverted for military purposes, the company revealed. In depositing securities last year. Nvidia was forced to develop a less powerful chip for the Chinese market.
The lack of chips is a limitation to the development of Chinese artificial intelligence. The country has only about 40,000 units of Nvidia’s A100 processor, which is used for machine learning and subject to US export restrictions, Megvii CEO Yin Qi estimated earlier this year in an interview with Caixin.
“China is a very important market for the technology industry,” Huang said. financial times. “There is no other China, there is only one China,” he said, warning of “serious damage to American companies” if trade in chips were to stop.
Nvidia’s CEO has suggested that shutting down the Chinese market would undermine US efforts to boost its own domestic chip manufacturing through the $52 billion in subsidies provided through the CHIPS and Science Act. The decline in demand, he said, means that “no one will need the fab, and we’ll be swimming in the fab.” (“Fabs” is an acronym for semiconductor manufacturing plant, or factories that produce chips).
Technical tensions between Washington and Beijing also open the door for non-US competitors. On Sunday, Chinese regulators blocked a wide range of entities from buying chips from US firm Micron Technologies. While regulators have cited cybersecurity risks, analysts believe the ban is retaliation against US chip controls.
The ban has led to a rally in Chinese chip stocks, as investors bet that domestic companies will eventually be able to replace imported semiconductors. South Korea, home to major chipmakers Samsung Electronics and SK Hynix, has hinted it will not stop its companies from filling the gap left by Micron.
If China can’t buy chips from the US, “they’ll build them themselves,” Huang said financial times.
