When Nvidia unveiled its recent earnings report on Wednesday, it prominently showcased impressive figures, triggering a surge of enthusiasm. The company recorded a notable $13.5 billion in revenue for the quarter, reflecting a remarkable 101% year-on-year increase. This performance substantially exceeded its projected guidance of $11 billion, undoubtedly constituting a significant achievement.
Nvidia’s advantageous market positioning becomes evident, as its GPU chips are witnessing substantial demand for powering expansive language models and other AI-driven workloads. Consequently, the company is currently experiencing a substantial upswing in growth, a trajectory that was strategically established some time ago.
During the post-earnings conference call with analysts, Colette Kress, Nvidia’s Executive Vice President and Chief Financial Officer, expounded on the underlying drivers of this growth. The surge in data center compute revenue, nearly tripling in comparison to the prior year, is primarily attributed to escalating demand from cloud service providers and major consumer internet corporations for Nvidia’s HGX platform, which serves as the backbone for generative and large language models.
The parallel to the bygone era of surging cloud stocks, witnessed during the pandemic-induced lockdown, comes to mind. Zoom, in particular, experienced a meteoric rise, boasting five consecutive quarters of extraordinary growth during that period. However, the landscape has shifted, with Zoom’s most recent revenue report indicating a modest 3.6% increase compared to the previous year. This follows a sequence of five quarters characterized by single-digit growth, the last three of which featured growth rates in the lower single digits.
In considering the potential implications for Nvidia, a salient question arises: could the Zoom phenomenon serve as a cautionary tale for a company that is currently capitalizing on the generative AI wave? Furthermore, there’s the prospect that this remarkable growth might inadvertently inflate investor expectations regarding the company’s sustained performance, akin to the scenario that transpired with Zoom.
Notably, Nvidia’s most substantial growth vector lies within the realm of data centers. Evidently, web scalers continue to proliferate at an impressive pace, with projections indicating the addition of over 300 new data centers in the foreseeable future, according to a March 2022 report from Synergy Research. John Dinsdale, Chief Analyst at Synergy Research Group, articulates an optimistic outlook for hyperscale operators, anticipating double-digit annual revenue growth largely driven by cloud-related revenues expanding in the range of 20% to 30% annually. This trend, in turn, augments capital expenditure and data center investment.
It’s worth highlighting that a considerable portion of this augmented spending is expected to be allocated towards infrastructure catering to AI workloads. Nvidia is poised to capitalize on this trajectory, as indicated by CEO Jensen Huang during the recent earnings call. Huang envisions a scenario where data centers worldwide are strategically channeling substantial capital towards accelerated computing and generative AI, signifying an enduring industry paradigm shift unfolding in parallel.
Should Huang’s perspective materialize, Nvidia might indeed be well-positioned to sustain its current growth trajectory. Nevertheless, historical precedent serves as a reminder that vertical ascents are frequently accompanied by eventual descents.
