By Robbie Whelan
Nvidia reported record sales and income in the January quarter, helping ease concerns over a possible artificial-intelligence bubble that have rippled through markets in recent months.
The chip maker reported fourth-quarter net income of $43 billion, up 35% from the year-earlier quarter, on sales of $68.1 billion, up 20% from a year earlier, easily beating consensus estimates.
Analysts polled by FactSet had predicted net income of $37.5 billion and revenue of $66.1 billion for the quarter.
Data center hardware — the chips and networking equipment that Nvidia sells to AI and cloud-computing companies — accounted for 91.4% of the quarter's sales, or $62.3 billion, and the segment's revenue grew slightly faster than the company's overall sales.
"Computing demand is growing exponentially," Chief Executive Jensen Huang said. "The agentic AI inflection point has arrived."
With each passing quarter, the pressure grows on Nvidia — which at a market value of nearly $5 trillion is the world's largest publicly traded company — to beat Wall Street's expectations.
"It's no longer enough for Nvidia to produce good quarterly results. They have to produce perfect quarterly results," said Daniel Newman, chief executive of tech research and advisory firm Futurum Group.
Nvidia's gross margins, which have been rising steadily for the past year, hit 75% in the January quarter, up from 73% a year earlier, in line with analyst predictions.
In recent months, investors have sent tech stocks on a wild ride as worries about the prospects of the AI trade have risen, then subsided, only to resurface. Nvidia's share price fell as low as $170.94 in mid-December but has recovered to over $196.
The biggest buyers of Nvidia's chips include ChatGPT-maker OpenAI, Oracle, Microsoft, Meta Platforms, Google parent Alphabet and Amazon.com. In recent months, investors have grown concerned over OpenAI's fundraising abilities and rising competition from other chip designers, including Google and makers of custom chips.
In January, The Wall Street Journal reported that Nvidia's deal, announced in September, to invest up to $100 billion in OpenAI, was on ice. Instead, Nvidia has said it would participate in OpenAI's latest funding round, making a smaller investment of $30 billion.
"They're exposed to a subset of companies with fragile balance sheets," Newman said. "A lot of Nvidia's capacity is going toward companies that investors have a question mark on."
A factor that will likely affect Nvidia's fortunes will be the transition from AI-model training to inference, the process by which AI tools respond to queries. Training and inference require different types of computing, and as a result, different hardware.
Nvidia has for years dominated the training market with its graphics processors, known as GPUs — powerful chips capable of performing billions of simple tasks simultaneously. As more tech companies deploy AI tools in the real world, demand is expected to shift from training to inference, which relies more heavily on central processing units, or CPUs, a simpler type of data center chip that more companies are capable of designing.
Last week, Nvidia announced a partnership with Meta that included its first major deployment of CPUs that aren't connected in servers to GPUs, a sign that customers such as Meta need more inference computing infrastructure to run their AI tools and other applications.
On Monday, Bank of America published a client note predicting that the market for server CPUs will double by 2030 to $60 billion, making CPUs a more important part of Nvidia's business.
Nvidia said Wednesday that it expected $78 billion in revenue in the current quarter, significantly higher than the $72.9 billion predicted by analysts, and gross margins of 75%, slightly higher than Wall Street's prediction. The better-than-expected revenue and rosy guidance sent Nvidia's stock up more than 2% in after hours trading, to $198.39.
Nvidia faces potential headwinds if it becomes more difficult for important customers such as OpenAI to obtain financing, or if competitors that specialize in custom AI chips gain market share, said Brian Mulberry, chief market strategist for Zacks Investment Management, which owns about $300 million worth of Nvidia stock across multiple funds.
But even if demand shifts, he expects minimal effect on Nvidia's margins in the short term because of how the company has developed best-in-class products for multiple computing categories.
"At the end of the day, they're still the most in-demand piece of hardware in the AI market, regardless of what side of it you're on," Mulberry said.
Write to Robbie Whelan at robbie.whelan@wsj.com
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