Nvidia's AI Chip Glory Gets Dimmed By US Export Curbs

On Tuesday, Nvidia Corporation NVDA topped analyst projections with its fiscal third quarter results as demand for its GPUs exceeded supply amid a generative AI hype. However, Nvidia shares dropped as the AI chip leader warned about the damaging impacts of US chip export curbs on its fourth quarter revenue.

Third Quarter Results Blew Past Estimates

For the quarter that ended on October 29th, Nvidia reported its revenue grew 206% YoY to  $18.12 billion, topping LSEG’s estimate of $16.18 billion. Net income amounted to $9.24 billion, or $3.71 per share, skyrocketing from last year’s comparable quarter when it amounted to $680 million, or 27 cents per share. Adjusted earnings per share amounted to $4.02, also topping LSEG’s estimate of $3.37 per share.

The gaming segment brought in $2.86 billion as revenue rose 81%, also topping StreetAccount’s estimate of $2.68 billion.

Data center revenue rose 279% to $14.51 billion, exceeding StreetAccount’s estimate of $12.97 billion. Half of this revenue came from cloud infrastructure providers, among which is Amazon.com Inc AMZN. Although Amazon dominated the first cloud era, it does not have a head start in the new AI cloud era. Even Amazon is forced to fight in a battle for dominance. Amazon used to be the number one partner when it came to its AWS offering, but generative AI created a Cloud 2.0 era, one in which Nvidia has a big head start because it made a big bet on AI long before everyone else, including Amazon. But despite the first mover advantage that Nvidia enjoys, one can never count out Amazon considering its track record, especially after making an investment in an AI startup, Anthropic, who created one of the most capable large AI models, Claude. Claude even wins on some benchmarks over OpenAI's ChatGPT that Microsoft Corporation MSFT embraced. While Microsoft enjoyed the boom of ChatGPT that excels when it comes to reasoning and languge tasks, Claude raised the bar when it comes to ethics, safety and efficiency. All in all, they are both powerful AI chatbots, and Amazon gained a valuable tool to challenge Microsoft on the generative AI front.

Guidance Dimmed By U.S. Export Restrictions

During the reported quarter, Nvidia announced its GH200 GPU which will come with more memory than the current H100, along with an additional Arm processor onboard. But, the U.S. export restrictions are expected to significantly harm sales in China in the undergoing quarter. Nvidia guided for a fourth quarter revenue of $20 billion which translates to revenue growth of 231%. There is also the competition from Advanced Micro Devices Inc AMD who is currently lagging with its offerings, but promises to challenged Nvidia’s advanced H100 with its MI300 chips. Earlier in November, AMD provided an optimistic sales forecast for AI chip sales that signaled it is making progress in its efforts to catch up to Nvidia. With AMD guiding for annual sales that exceed $2 billion, along with raising MI300’s undergoing-quarter revenue expectations by $100 million, this chip could enter AMD’s history as the fastest product to reach the $1 billion sales milestone. AMD certainly remains a key player in the race for AI chip innovation and Nvidia’s most threatening rival.

The Rise Of Generative AI 

When Microsoft Corporation-backed Open AI launched the ChatGPT chatbot that took the world by storm, companies rushed to find ways add similar generative AI capabilities and consequently, created an abundant demand for Nvidia’s GPUs. Nvidia is working on its plan to grow supply next year as current demand is exceeding the existing supply. All in all, the generative AI hype isn't showing signs of slowing down anytime soon, which bodes well with Nvidia, but its competitors are intensifying their efforts as well, possibly threatening Nvidia sometime in the future, while U.S. export curbs are bound to result in immediate revenue damage.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.