The AI boom continues to drive stunning revenue growth for Nvidia (NVDA:NASDAQ), which smashed already-elevated earnings expectations, but the firm issued a veiled threat that US restrictions on selling advanced chips to China may come at a cost.

Nvidia clocked adjusted earnings per share of $4.02 on revenue of $18.12 billion in the third quarter (to 31 October), a sharp beat versus consensus estimates of $3.36 earnings per share and $16.18 billion revenue. But the risk of a significant decline in future revenue from China as the impact of Washington’s exports impasse with Beijing rumbles on was not missed by investors.

‘We expect that our sales to these destinations 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 finance chief Colette Kress.

It meant Nvidia’s stock drifted back from record $499.44 levels, although having run up more than 16% into the results, some profit taking was to be expected.

The reverberations echoed across Nvidia’s Asian suppliers. Japan’s Advantest (6857:TYO) and Tokyo Electron (8035:TYO), which supply semiconductor equipment to Nvidia, sank around 4% and 1% in response. Taiwan Semiconductor Manufacturing Company (TSM:NYSE), the world’s biggest contract chipmaker and a key Nvidia supplier, fell 1.5%, while Korean memory chip suppliers SK Hynix (000660:KS) and Samsung Electronics (005930:KS) lost around 1.6% and 1.1%, respectively.

Nvidia is going all-in on AI, arguing we’re on the cusp of a radical shift in the world of technology on a par with the birth of the internet. Companies in every industry are exploring ways to use AI to improve productivity and that creates a huge runway for Nvidia to grow its earnings.

Steven Yiu, manager of the Blue Whale Growth Fund (BD6PG78), whose largest stake is Nvidia, believes that using AI to do the work of just 5% of the estimated one million white collar workers globally implies a $1 trillion market opportunity. This is a long-run transition and won’t happen overnight, but the scale of AI’s ability to change how organisations work sits behind analysts’ share price targets for Nvidia of $1,100 at the top end.

‘Its key challenge is to keep up with demand and to keep innovating, rolling out new products that can help companies, while also ensuring it remains at the cutting edge of the AI industry’, says AJ Bell’s Russ Mould. ‘Nvidia is the dominant force in the market and there is no room for complacency, otherwise competition will be biting at its heels.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Steven Frazer) and the editor of the article (Ian Conway) own shares in AJ Bell. Steven Frazer also has a personal stake in Blue Whale Growth.

‹ Previous2023-11-23Next ›