You’ve probably already heard by now that Nvidia’s guidance for fiscal Q2 of $11 billion was 53% higher than analyst expectations of $7.2 billion. The stock is up 25% after hours, adding $200 billion to its market cap.
Originally, the stock was up +15% and then shot up to +25% when the CFO mentioned the beat is coming from the data center, plus when it was confirmed H2 would be also strong with visibility on supply.
We’ve been talking about this rebound for several months. It’s been the subject of quarterly webinars, free editorials and our earnings updates, as well. I was starting to feel like a broken record about the “H2 Semi Rebound” – especially on our last webinar — but I guess it was for a good reason because we got a helluva rebound today.
The rebound now looks like this:
Data center was expected to grow 9% YoY yet beat expectations at 14% YoY growth in the current quarter. This was stated in the opening remarks: “We expect this sequential growth to largely be driven by data center, reflecting a steep increase in demand related to generative AI and large language models. This demand has extended our data center visibility out a few quarters and we have procured substantially higher supply for the second half of the year.”
If Nvidia is adding roughly $4 billion in revenue, primarily driven by the data center, then Q2’s growth will accelerate to an incredible 100% growth rate, up from $3.8 billion in the year ago quarter. It also means the data center will roughly double from the first quarter (sequentially) as the segment was $4.28B in the current quarter.
Put another way, this means Nvidia’s data center segment in the upcoming quarter will be as large as the company’s entire revenue this quarter – if we assume $7.75B in the data center compared to $7.2B total revenue this quarter. See below for analyst Q&A around this.
The other segments are, you guessed it, rebounding too. The sequential numbers show this quite clearly. Here are the official numbers:
- Data center revenue of $4.28B up 18% QoQ and 14% YoY
- Gaming revenue of $2.2B, up 22% QoQ and down (-38%) YoY
- Pro Viz revenue of $295 million, up 31% QoQ and down (-53%) YoY
- Automotive revenue of $296 million, up 1% QoQ and up 114% YoY
The gross margin was strong at 64% in the current quarter and the guide is for 68.6% in the next quarter – per the CFO: “Gross margins have now largely recovered to prior peak level, and we have absorbed higher costs, and offset them by innovating and delivering higher valued products as well as products incorporating more and more software.”
Earnings Call:
This question pointed toward the “doubling” of the data center revenue:
C.J. Muse
Yeah. Good afternoon. Thank you for taking the question. I guess with data center, you are essentially doubling quarter-on-quarter, yes, two natural kind of questions that relate to one another come to mind. Number one, where are we in terms of driving acceleration into servers to support AI? And as part of that, as you deal with longer cycle times with TSMC and your other partners, how are you thinking about managing their commitments there with where you want to manage your lead times, in the coming years, to best kind of match — best match that supply and demand? Thanks so much.
Note: the answer was long so this is an excerpt
Jensen Huang:
“And what happened is, when generative AI came along, it triggered a killer app for this computing platform that's been in preparation for some time. And so, now we see ourselves in two simultaneous transitions. The world's $1 trillion data center is nearly populated entirely by CPUs today, and $1 trillion, $250 billion a year, it's growing of course. But over the last four years, call it a $1 trillion worth of infrastructure installed. And it's all completely based on CPUs and dumb NICs (ph). It's basically unaccelerated.
In the future, it's fairly clear now with this — with generative AI becoming the primary workload of most of the world's data centers generating information, it is very clear now that — and the fact that accelerated computing is so energy efficient, that the budget of the data center will shift very dramatically towards accelerated computing and you're seeing that now. We're going through that moment right now as we speak. While the world's data center CapEx budget is limited, but at the same time, we're seeing incredible orders to retool the world's data centers.”
Here was a good question about what Q3 and Q4 will look like if Q2 is this strong, and can supply keep up with the demand:
Vivek Arya:
Thanks for the question. Could I just wanted to clarify does visibility mean data center sales can continue to grow sequentially in Q3 and Q4 or do they sustain at Q2 levels? I just wanted to clarify that. And then Jensen, my question is that, given this very strong demand environment, what does that do to the competitive landscape? Does it invite more competition in terms of custom ASICs? Does it invite more competition in terms of other GPU solutions or other kinds of solutions? How do you see the competitive landscape change over the next two to three years?
Colette Kress:
Yeah, Vivek. Thanks for the question. Let me see if I can add a little bit more color. We believe that the supply that we will have for the second half of the year will be substantially larger than H1. So, we are expecting not only the demand that we just saw in this last quarter, the demand that we have in Q2 for our forecast, but also planning on seeing something in the second half of the year. We just have to be careful here. But we are not here to guide on the second half of that. Yes, we do plan a substantial increase in the second half compared to the first half.
Conclusion:
Nvidia is our largest position and we have taken gains along the way. The plan right now is to wait for a pullback to add more. This earnings report may have changed what the pullback looks like as it’s certainly a historic earnings report in many regards – I do not believe we’ve ever seen $200B market cap added in one day. The reason this much market cap was added AH is that the acceleration of 100% growth in the data center is bonkers considering most tech companies are struggling with a sharp deceleration.
I had put in an editorial that Nvidia investors can take their sweet time adding to this position. This is true, so don’t panic. You haven’t seen anything yet. Once software starts to kick in, it’s going to be an unbelievable ride.
The risk with Nvidia is two things: Broader Macro Events and China. As Jensen Huang recently said: “There is only one China.” If the chip war heats up, China cannot be replaced and the effects would be devastating to the chip industry. Macro continues to be a wild card and tech is especially sensitive to macro. I don’t mean to end on a somber note but I want to make sure we talk about the risks so you’re mentally prepared for it.