Nvidia is gearing up to reveal its third quarter performance on Tuesday and investors are still rallying behind it after a wildly successful year for the chip powerhouse.
In the wake of a strong second quarter performance that saw revenues soar to $13.5bn (£10.8bn), mainly thanks to a 171 per cent surge in data centre revenue, the computing giant is aiming to maintain its stride.
Nvidia predicts third quarter revenues of around $16bn (£12.8bn) and a 170 per cent growth in sales compared to the same period last year.
But industry analysts hold a more conservative estimate, forecasting revenues at $12.6bn (£10.1bn), according to Refinitiv.
Annual revenue is predicted to grow from $27bn (£22bn) last year to an estimated $49bn (£39bn) in the current financial year, eventually aiming for $70bn (£56bn) by 2025.
Michael Hewson, Chief Market Analyst at CMC Markets UK, said Nvidia’s revenue growth so far is “astonishing” but warned of a couple challenges ahead.
Firstly, Nvidia is highly exposed to China, which accounts for 20 to 25 per cent of its data centre revenue. Last quarter the majority of total revenue came from its data centre.
“Another risk”, he said, “is that Nvidia’s competition is likely to get more intense which could put longer term pressure on margins.
“It may be number 1 now but staying there could become more challenging with the shares already up over 200% year to date.”
Nvidia, currently perched top of the S&P 500, is on a bullish streak and its stock has gained over 20 per cent this month, adding $28bn in market cap just last week. Dow Jones Market Data Group believes it is on track for the best year since 2001.
AJ Bell analysts Russ Mould and Danni Hewson said Nvidia has been a litmus test of the wider US equity market performance in 2023.
“Silicon chip stocks are a good guide to the global economy by dint of their ubiquity,” they explained.
“This is a $600 billion-a-year industry, sales wise, and semiconductors can be found in everything from smartphones to servers, robots to smart metres and cars to laptops.”
Although consultants Gartner and WSTS both reckon global chip sales will drop 10 to 12 per cent this year, a rebound of the same amount is forecast for next year.
It comes as Microsoft enters the semiconductor battle, unveiling two new microchips in Seattle last week. One of them, the Maia 100 artificial intelligence (AI) chip, could compete with Nvidia’s AI graphics processing units.