Yahoo Finance Nvidia to see impressive growth over ‘next couple of years’: Analyst
Nvidia (NVDA) posted a massive earnings beat on Tuesday, topping analysts’ estimates on the top and bottom lines for the third quarter as well as projections for the fourth quarter. But Wall Street was less than impressed with the report on China export fears, sending shares of the AI chipmaker down more than 3% on Wednesday.
Despite the chilly reception, analysts are sticking by Nivida as a major growth play for years to come, with the expectation that AI will continue to dominate as the technology everyone — from enterprises to governments and beyond — will turn to in the future.
“Nvidia’s October quarter and January outlook was impressive and met high expectations and the company continues to be well positioned to have really impressive growth over the next couple of years, as they are one of the key infrastructure builders for this paradigm shift,” Deepwater Asset Management managing partner Gene Munster said in his post-earnings “Pressure Points” report.
And while there are concerns that Nvidia’s China business, which is expected to face steep declines due to recent US export regulations, could drag on the company going forward, the company said it’s already working on a solution to address the problem.
The AI explosion isn’t a short-term phenomenon
OpenAI, which just experienced a board revolt, blew the world away when it released its generative AI-powered chatbot ChatGPT to the world in November 2022. Since then generative AI has seemingly been the only thing the tech industry could talk about.
And while ChatGPT and its ilk are certainly impressive, it’s how generative AI, and AI more broadly, will continue to roll out across various industries and government organizations that will help power Nvidia’s growth.
For example, during the question-and-answer session of the company’s earnings call, CEO Jensen Huang said that he believes Nvidia’s datacenter business will continue to grow through 2025.
“We are expanding our supply quite significantly. We have already [wanted] the broadest and largest and most capable supply chain in the world,” Huang said. “And so, I think … we're at the beginning of a, basically across the board, industrial transition to generative AI, to accelerated computing. This is going to affect every company, every industry, every country,” he added.
Analysts largely agree with those claims.
“Nvidia is at the center of the secular demand for AI ahead: nations, regional [cloud service providers], enterprise, and software companies are part [of] the next AI wave, which overall remains at its infancy,” Baird Equity Research senior research analyst Tristan Gerra wrote in an investor note following Nvidia’s report.
UBS Global Research’s Timothy Arcuri, meanwhile, said that Huang appears to be backing up his promises.
“[Nvidia] sure sounds confident on sustained growth — and it makes sense to us as waves of growth are starting to build with horizontal enterprise software companies starting to embed [Nvidia] AI into their platforms to take out into the world and broaden the [Nvidia] ecosystem.”
“We think,” said Arcuri, “it is still too early to get off this train — especially as [Nvidia is] the de-facto global platform for what might be one of the most transformational technologies of our lifetime (AI).”
China fears could be short-lived
While analysts are high on Nvidia’s future, there’s still a potential roadblock in the near term: China. According to CFO Colette Kress, sales to China and other impacted regions accounted for 20% to 25% of the company’s data center revenue over the past few quarters.
“We are working with some customers in China and the Middle East to pursue licenses from the US government,” Kress said during the company’s earnings call. “It is too early to know whether these will be granted for any significant amount of revenue.”
According to Kress, Nvidia doesn’t have any long-term visibility into how much the US’s export controls will impact the company’s overall revenue.
Still, Nvidia is already working on solutions to the problem, including less powerful chips that the U.S. will allow the company to ship to China with the appropriate licenses. If Nvidia can meet the US’s requirements and still sell through to its China customers, it could manage to hold onto revenue in the region without upsetting its home country.
For now, though, Nvidia looks set to enter into 2024 with the wind at its back.
Daniel Howley is the tech editor at Yahoo Finance. He's been covering the tech industry since 2011. You can follow him on Twitter @DanielHowley.
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