Nvidia shares rise 13% after AI 'tipping point' sales surge

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Nvidia shares rose after the world's most valuable chip company forecast a 265 percent rise in quarterly revenue and even stronger sales driven by a spending spree on artificial intelligence.

Fourth-quarter revenue was $22.1bn, beating Wall Street expectations of $20.4bn, Nvidia said on Wednesday evening, expecting revenue of $24bn for the current quarter.

“Accelerated computing and generative AI have reached a tipping point,” said Jensen Huang, Nvidia founder and chief executive. “Global demand is increasing across enterprises, industries and countries.”

Shares of Nvidia rose more than 13 percent to $764.50 in premarket trading on Thursday. The move pushed Chip to become the third most valuable US-listed company behind Microsoft and Apple, behind Amazon and Google's parent Alphabet.

Nvidia has been the biggest single driver of a rally in the S&P 500 this year, accounting for about a quarter of the index's gains. Its importance has become so high that some investors and analysts expect Wednesday's financial report to hold market-wide risk similar to the release of inflation data.

Nvidia said fourth-quarter earnings per share reached $4.93, beating analysts' expectations of $4.59, according to LSEG estimates.

Net income rose 770 percent year-over-year to $12.3 billion. The figure beat analysts' expectations of $10.4bn.

Founded in 1993 as a provider of graphics cards for computer games, AI has become a proxy for demand as major tech companies such as Nvidia, Alphabet, Microsoft, Amazon and Meta have all increased their investment in AI computing. Its flagship chips, such as the H100, have become the industry standard for AI developers to crunch data for large language models. It heralded a new industry known as generative AI, spawning chatbots and other software that can learn, understand and generate information in the form of text, images and video.

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The rapid success of OpenAI's ChatGPT helped make H100 chips a hot item in Silicon Valley last year. Meta plans to bring its total H100 chips to 350,000 by 2024, Chief Executive Mark Zuckerberg said in January. Supply rather than demand is the main constraint to Nvidia's growth in the short term.

“NVIDIA has implemented a new computing paradigm called generative AI,” Huang said on a call with investors on Wednesday. He said its high-value chips are “basically AI-generation factories” of a new industrial revolution.

“Each company is built on their proprietary business intelligence and, in the future, their proprietary generative AI,” he added. “Now all departments are on board.”

Big tech companies account for nearly 40 percent of Nvidia's revenue, but its customers have diversified as more industries rush to invest in hardware for AI computing. Huang said industries including automotive, financial services and healthcare are now spending “at the multi-billion dollar level” on its chips. He said sovereign nations including Japan, Canada and France are becoming big Nvidia customers as they use citizen data to build their own AI models.

Nvidia's data center division, its biggest driver of sales, generated $18.4bn in revenue in the fourth quarter, up 409 per cent from the same period last year. Gaming chips generated sales of $2.9bn.

Investors are paying close attention to whether Huang can maintain Nvidia's stratospheric growth rates as it shifts focus to new products such as its top-end AI chip, the B100, which is expected to start shipping later this year.

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The company faces increasing competition, including a move by some customers to build their own AI chips in China, which has accounted for a quarter of revenue in the past. New US export rules for the semiconductor industry forced Nvidia to limit the capabilities of its products to continue selling into the region.

Its latest results were welcomed by analysts, according to the company, although sales to China fell to a “mid-single-digit percentage” of overall revenue. Peter Cornry, head of equity strategy at Saxo Bank, said it was a “crazy” decision. “I have never seen anything like this in my career. However, it will be difficult for Nvidia to exceed expectations, and this could be the last crazy quarter.

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This article has been updated to adjust Nvidia's relative size compared to other listed companies

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