Nvidia’s results confirm a new generation of technology leaders.
- Nvidia reported revenue of $81.6 billion, up 85% year on year and ahead of Wall Street forecasts
- Nvidia projected revenue for the next quarter well above consensus estimates on the back of ‘exponential’ demand
- It is another sign that the spoils of AI are accruing to the AI infrastructure groups
Nvidia has become a vital market bellwether. If it does well, it shows that the AI capital spending boom is intact, and markets can party on. If it does not, fears over an AI bubble mount and investors start to become nervous over valuations. For the time being, markets can breathe easy, as Nvidia delivered another barnstorming set of results.
Nvidia’s results exceeded already high expectations. It reported revenue of $81.6 billion, up 85% year on year and comfortably above Wall Street forecasts of $78.9 billion. Data centre growth was particularly strong, rising 92% in a year. The company also announced a $80bn share buyback programme.
Daniela Hathorn, senior market analyst at Capital.com, says: “Perhaps the most significant takeaway was forward guidance. Despite markets already pricing in extraordinary year-on-year growth, Nvidia projected revenue for the next quarter well above consensus estimates. CEO Jensen Huang reiterated the “exponential” demand for compute power, reinforcing the narrative that AI infrastructure spending remains in full acceleration mode.”
It is another sign that the spoils of AI are accruing to the AI infrastructure groups – the chip makers and parts manufacturers. The market is more negative on those who are spending on AI. In particular, there are still some nerves around the hyperscalers – including Amazon, Alphabet and Microsoft – and whether they can reap the benefits of their huge expenditure.
Clare Pleydell-Bouverie, co-manager on the Liontrust Innovation fund, believes the hyperscalers are spending into existing demand, and are already seeing revenues inflect as a result. However, she admits they may not be as important a part of the value chain in future. The dominant players are likely to be Nvidia, Micron and other AI infrastructure groups.
This is a view echoed by James Anderson in an interview with the Financial Times. He says the spoils of the trillion-dollar AI spending frenzy will flow to a small number of hardware suppliers, including Nvidia, Taiwan Semiconductor Manufacturing Company and ASML. He says this group has significant pricing power because “Right now, no one can say no.”
Against this backdrop, it appears that the Magnificent Seven is going to be less relevant as a stock market grouping. It will take time for the hyperscalers to realise their investment and in the meantime a new set of winners will steal a march on them. Investors are going to need a new acronym.
