Nvidia smashes earnings expectations

Nvidia’s (US:NVDA) earnings smashed expectations again, as the artificial intelligence (AI) industry looks on at yet more drama at leading company OpenAI. 

The company’s graphics processing units are the chips needed to train the AI models and they are in high demand from companies like OpenAI. In the three months to October, its revenue was up 206 per cent year-on-year to $18.1bn (£14.4bn), this was 12 per cent ahead of Factset analyst consensus expectations. 

Growth is expected to kick on again next quarter, with the company forecasting revenue to rise to $20bn in the three months to January. This would be a 230 per cent year-on-year increase and this was despite concerns about restrictions on China.

“We expect that our sales to [China] will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions,” said Nvidia’s chief financial officer Colette Kress.

Nvidia’a earnings per share of $4 was up almost 600 per cent year-on-year and 19 per cent ahead of consensus expectations.  Although Nvidia is trading on 120 times its last year's profits, the rate of growth means its forward price to earnings ratio is much lower at 31. However, the share price did fall 2 per cent in after-hours trading, potentially because of the risk of losing Chinese revenue which makes up around a fifth of the business.

ChapGPT creator OpenAI has now brought back Sam Altman five days after firing him, after the vast majority of the company's 770 employees threatened to quit if he was not reinstated. Altman had already signed on at OpenAI investor Microsoft (MSFT), which has pumped billions into the business. The board sacked him at the end of last week because “he was not consistently candid in his communications”. 

There were also reports of disagreements over his efforts to keep commercialising OpenAI's large language models. 

Microsoft, which owns 49 per cent of OpenAI, had been in the dark about the initial decision to remove Altman, as the technology giant had no seats on the board. Microsoft’s share price dropped 2 per cent on the news of his sacking before bouncing back after announcing they could hire Altman directly to run their in-house AI lab. The concern initially for Microsoft was that Altman could leave to join a competitor, so they had to move quickly to prevent this.

"With [a] new board and with [Microsoft CEO Satya Nadella's] support, I’m looking forward to returning to OpenAi, and building on our strong partnership with MSFT," Altman said. 

Microsoft’s investment in OpenAI has given it a lead in the AI race which helped its share price rise 55 per cent this year. The foundational model used to build ChatGPT has been used to create Microsoft’s 365 Copilot, the AI enabled version of Office 365, which it has just started rolling out to customers and is forecast to start generating billions in revenue.

The growth of AI can be seen by semiconductor designer Nvidia’s latest earnings numbers. The company’s graphics processing units are the chips needed to train the AI models and they are in high demand. In the three months to October, its revenue was up 206 per cent year-on-year to $18.1bn, this was 12 per cent ahead of Factset analyst consensus expectations.

The AI opportunity is massive, as shown by Nvidia's bumper numbers. Microsoft’s partnership with OpenAI had it out front in software, and after a bump week this looks like it will continue. Amazon (US:AMZN) and Alphabet (US:GOOGL) will be looking on with disappointment. 

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