Nvidia Corp. shares jumped in after-hours trading Wednesday, as the graphics-chip specialist revealed it has mostly settled inventory issues and is focusing on opportunities in artificial intelligence.
Nvidia
NVDA,
founder and Chief Executive Jensen Huang revealed in a conference call Wednesday afternoon that Nvidia’s AI software will now be available in several cloud-computing offerings, including Oracle Corp.’s
ORCL,
Microsoft Corp.’s
MSFT,
and Alphabet Inc.’s
GOOG,
GOOGL,
services, with “others on the way.” He believes the browser-based DGX Cloud AI supercomputer service will accelerate adoption of higher-margin software offerings focused on data-center applications at a time when AI interest is exploding.
“The activity around the AI infrastructure that we built … has just gone through the roof over the last 60 days,” Huang said.
A new wave of hype for artificial intelligence has been building this year, as the ChatGPT chatbot has reinvigorated interest in the technology. Microsoft Corp.
MSFT,
announced a new investment into OpenAI, the startup behind ChatGPT, and is rolling out new services using the technology.
The new cloud-based offering will go beyond offering the higher level of computational abilities that Nvidia gear can provide, and include access to Nvidia software. Nvidia Chief Financial Officer Colette Kress said on the call that software brings in “hundreds of millions” of dollars in revenue and that it is “getting stronger.”
Currently, Nvidia doesn’t break out software revenue, leaving it instead within its reported segments like data center. As the software segment of the company grows, Kress told MarketWatch in an interview they could break out software contributions at some point in the future.
“As we scale, software standalone going forward, it will be a driver,” Kress told MarketWatch. “Right now, just the amount of products and offerings that we have in data center are going to be the largest driver in the mix of those products.”
Nvidia was able to turn the page from inventory issues that have dogged the past two quarters, and led to large declines in sales and revenue in the fiscal fourth quarter, with its AI focus and forecast. Kress said data-center sales are expected to grow sequentially and year over year, “accelerating past Q1.”
Nvidia forecast first-quarter revenue of $6.37 billion to $6.63 billion, while analysts on average were estimating earnings of 85 cents a share on revenue of $6.31 billion for the first quarter. Adjusted gross margins for the fourth quarter came in at 66.1%, down from 67% a year ago, but up sequentially from 56.1% during the company’s inventory drawdown. Going forward, Nvidia expects gross margins of 66% to 67% for the first quarter.
Nvidia reported fourth-quarter net income of $1.41 billion, or 57 cents a share, compared with $3 billion, or $1.18 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 88 cents a share, compared with $1.32 a share in the year-ago period. Revenue fell to $6.05 billion from $7.64 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast 81 cents a share on revenue of $6.02 billion. Shares jumped about 9% after hours, following a 0.5% gain in the regular session to $207.54.
Read: Nvidia earnings overshadowed by Microsoft, ChatGPT, OpenAI, 10-year gaming partnership
Data-center sales rose 11% to $3.62 billion from a year ago, missing analysts’ average forecast of $3.85 billion. Nvidia’s data-center business has been a main driver for the stock in recent years, but a recent slowdown in cloud computing has created concern about the near-term growth of the business, while advances in artificial intelligence have boosted hopes for the future.
“Our research … illustrates expectations for a 3% decline in spending from the top seven cloud-service providers, in aggregate, in 2023. This downtick follows roughly 33% growth in 2022 and 26% growth in 2021,” Stifel analysts wrote in a preview of the report this week. “While we expect AI-focused investments to remain a priority and potentially escalate as competition heats up, we remain wary of expectations for significant slowing in overall data-center capex spending in 2023.”
Gaming sales reached $1.83 billion, while analysts on average were expecting $1.59 billion, according to FactSet. Nvidia’s gaming business may receive a boost from a recent deal with Microsoft, which is trying to close a $69 billion acquisition of Activision Blizzard Inc.
ATVI,
but the company has been dealing with an inventory glut after struggling with supply earlier in the COVID-19 pandemic.
Read: Microsoft teams up with Nvidia and Nintendo in 10-year deal to stream Xbox games
Over the past 12 months, Nvidia shares have declined about 12%, while the Dow Jones Industrial Average
DJIA,
has slipped 2%, the S&P 500 index
SPX,
has declined 7%, and the tech-heavy Nasdaq Composite Index
COMP,
has fallen 14%.