Nvidia is still the AI kingpin

• The AI boom is still fuelling extraordinary growth at Nvidia
• The AI chip and software specialist has reported a year-on-year revenue increase of 262% for its fiscal first quarter
• Its operating profit for the quarter leaped by 690% to $16.9bn
• It’s making hay while the GenAI sun shines, but at least one analyst believes it’s only a matter of time before reality bites

AI chip and software vendor Nvidia has once again defied expectations by reporting staggering sales and earnings growth for its most recent financial quarter as the insatiable demand for its technology, particularly from the datacentre sector, continues unabated.

There were some suggestions that the growing demand for Nvidia’s graphics processing units (GPUs) and supporting software might be tempered a little (and briefly) while customers waited for the company’s next-generation chip called Blackwell, which Nvidia unveiled earlier this year. 

Not a bit of it: The vendor is selling as much as it can physically produce right now to provide the technology needed to train and interrogate the large language models (LLMs) that are being developed to enable generative AI (GenAI) services. Just one customer, Amazon Web Services (AWS), it seems, is holding back a bit ahead of Blackwell’s availability, but that didn’t dent the company’s growth.   

For its fiscal first quarter that ended 28 April, Nvidia reported revenues of just over $26bn, up 262% year on year. Datacentre customers accounted for $22.6bn, up by 427% year on year. Operating profit jumped by 690% to $16.9bn and pure net profit jumped 628% to almost $14.9bn. All of these numbers exceeded the expectations of the financial analyst community and were published after the US stock market closed on Wednesday: In after-hours trading, Nvidia’s share price increased by 6.7% to 1,013.28, valuing the company at almost $2.5tn. 

And the sales number isn’t hitting a plateau just yet: Nvidia expects its fiscal second-quarter revenues to hit $28bn, even better than Wall Street’s expectations of $26.66bn.

For more on Nvidia’s first-quarter results see this press release.

Jensen Huang, Nvidia’s founder and CEO, stated: “The next industrial revolution has begun – companies and countries are partnering with Nvidia to shift the trillion-dollar traditional datacentres to accelerated computing and build a new type of datacentre – AI factories – to produce a new commodity: Artificial intelligence. AI will bring significant productivity gains to nearly every industry and help companies be more cost and energy efficient, while expanding revenue opportunities.”

He continued: “Our datacentre growth was fuelled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets. We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” stated Huang. 

Among those looking to capitalise on that “next wave of growth” are the telcos, some of which have struck important relationships with Nvidia to build GPU-based cloud facilities and develop new services for their customers, including Telenor, Swisscom, Iliad’s Scaleway, Indosat and Singtel. 

But, as we know, all good things must come to an end: Nvidia’s sales can’t grow for ever and certainly not at the current pace, but at the moment it’s in a league of its own, as seasoned technology analyst Richard Windsor noted in his latest Radio Free Mobile blog. 

“Nvidia contemptuously swept aside both its critics and its competition, and reported another huge set of results that confirmed that the AI frenzy and the bubble continue to grow and inflate,” noted Windsor. 

He added that the vendor’s incredibly high gross margins of 78.4% suggest it can pretty much charge what it likes for its technology because only Nvidia has the tech that everyone needs to fulfil customer demand for AI workloads. “Nobody wants to buy chips from the competition, many of whom are struggling to make any sales unless they address a very specific niche in the market,” wrote Windsor. 

But as is often the case, Windsor is the voice of reason when it comes to real-world capabilities and market dynamics: He has long said that the economics and valuations associated with generative AI don’t really stack up and that, at some point, there will be a reset. 

“At some point, it will become clear that the LLMs that power generative AI have no understanding of causality and remain unable to reason… This is important because these are two crucial abilities that the machines need to become truly intelligent,” and without that true intelligence, GenAI will ultimately fail to live up to the hype currently being peddled by the hyperscalers and the AI sector, reckons Windsor, and when that happens, there will be “a correction, just like there is every single time the market gets worked up in a frenzy like this.” 

However, Nvidia as a company is not going to suddenly shrivel and die: Expectations about GenAI’s capabilities will be reset but it will still be very useful in lots of different ways. “Generative AI has a lot of use cases even with the machines being unable to reason or understand causality,” notes Windsor, and that will give Nvidia a long tail of business. 

There’s more in Windsor’s analysis, which is well worth checking out and following. 

In the meantime, Nvidia remains the AI tech firm to watch and do business with (if you can afford it). 

- Ray Le Maistre, Editorial Director, TelecomTV