Nvidia sees growth in other markets to offset sales slump in China in near term

Jingyue Hsiao, DIGITIMES Asia, Taipei 0

Credit: AFP

Nvidia posted impressive growth in its latest financial results and expects another explosive growth in the current quarter. The updated export curbs by the White House have yet to impact Nvidia's earnings in the near future, as sharply declining sales from China are expected to be offset by other markets. However, negative effects loom over the long term.

Nvidia released the financial results for the fiscal third quarter of 2024 that ended in October, recording a sales growth of 206%, reaching US$18.12 billion. Nvidia's operating income and net income grew by more than 1,000% in the last quarter.

Jensen Huang, founder and CEO of Nvidia, said the strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI, adding that Nvidia GPUs, CPUs, networking, AI foundry services, and Nvidia AI enterprises software are all growth engines in full throttle, as the era of generative AI is taking off.

Nvidia anticipates sales for the fiscal fourth quarter to be US$20 billion with a variance of up to 2%, signaling another more than 200% growth in sales in the current quarter. GAAP gross margins for the current quarter are expected to be 74.5%, plus or minus 50 basis points. Operating expenses are estimated at around US$3.17 billion for GAAP. Other income and expenses, excluding gains and losses from non-affiliated investments, are anticipated to amount to roughly $200 million for GAAP and non-GAAP.

Nvidia saw its data center business grow by 278.67% in the last quarter, a record for the company, and the gaming and professional visualization business also recorded a double-digit growth for the period. Nvidia CFO Colette Kress said that the data center compute revenue quadrupled from last year, and networking revenue nearly tripled. She further noted that generative AI applications are fueling strong broad-based demand for Nvidia-accelerated computing. Huang said at the earnings call that they believe the data center business can grow through 2025.

Bloomberg Intelligence released a note stating that Nvidia's third straight double-digit percentage beat of sales consensus this year and raised guidance highlights its ability to expand supply consistently. It also indicates the likelihood of a higher unit-volume mix contribution from the H100, higher ASP, and margins.

China sales slump looms

However, Kress said that although the US export curbs updated on October 23 did not have a meaningful impact on revenue in the fiscal third quarter as they were announced near the end of the fiscal quarter and the firm had additional demand from customers outside the sanctioned country groups, sales to these sanctioned destinations will decline significantly in the fiscal fourth quarter, which will be more than offset by strong growth in other regions. Kress mentioned that China and other affected destinations contributed about one-fourth of Nvidia's data center revenue over the last few quarters.

Kress said that for the highest performance levels, the US requires licenses. For lower performance levels, the US requires a streamlined prior notification process. And for products with even lower performance levels, the US does not require any notice. Following clear US guidelines, Nvidia is working to expand its data center product portfolio to offer compliant solutions for each regulatory category, including products for which the US government does not wish to have advance notice before each shipment.

Stacy Rasgon, an analyst at Bernstein, was quoted by Reuters saying that after the revised export ban, Nvidia could not simply make small changes to the memory bandwidth of the parts to make products tailored for the Chinese market, and the latest export restrictions reduced Nvidia's products sold to China sharply. Still, these products are attractive to Chinese customers and more palatable to US regulators.

Source: Nvidia, November 2023

Source: Nvidia, November 2023

Source: Nvidia, November 2023