By Chavi Mehta, Max A. Cherney and Stephen Nellis
(Reuters) -Nvidia far exceeded expectations with its quarterly revenue forecast on Wednesday as an artificial-intelligence boom fueled demand for its chips and said it would buy back $25 billion in stock, sending its shares soaring after hours.
Nvidia's forecast beat expectations by billions of dollars, demonstrating that a boom in generative AI technologies that can read and write in human-like ways - and powered almost exclusively by Nvidia's chips - shows no signs of slowing down.
Nvidia's additional $25 billion in share repurchases announced on Wednesday come as shares have already tripled this year, making the company the first ever trillion-dollar chip business as investors bet Nvidia will be the key beneficiary of the AI boom.
Analysts have estimated that demand for Nvidia's prized AI chips is exceeding supply by at least 50%, adding that the imbalance will stay in place for the next several quarters.
"Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” Jensen Huang, Nvidia's chief executive, said in a statement.
Shares of Santa-Clara, California-based Nvidia rose 9.6% in trading after the bell, hitting an all-time high.
But it was the company's entire AI systems, not just its chips, that were the largest contributor to the quarter's growth, according to its executives. Although known for its graphics processing units (GPUs), Nvidia produces whole AI machines with memory chips from other suppliers and tens of thousands of other parts.
Nvidia's report lifted the shares of other Big Tech stocks and AI-related companies, with Microsoft jumping 1.9%, Meta Platforms up 2.1% and Palantir Technologies surging 4.6% in extended trading on Wednesday.
The results were a "'drop the mic' moment in our opinion that will have a ripple impact for the tech space for the rest of the year," said Daniel Ives, analyst at Wedbush Securities.
From AI startups to major cloud services providers like Microsoft, all are looking to get their hands on more Nvidia chips. Demand from China is also in overdrive, as companies there are placing rush orders to stockpile chips before any further U.S. export curbs come into action.
Should the U.S. place additional export restrictions on AI chip sales to China, it would have no immediate impact on the company's results, finance chief Colette Kress told analysts on a conference call. Such controls would "result in a permanent loss of an opportunity for the U.S. industry to compete and lead in one of the world's largest markets."
The company forecast third-quarter revenue of about $16 billion, plus or minus 2%. Analysts polled by Refinitiv on average were expecting $12.61 billion.
Adjusted revenue in the second quarter was $13.51 billion, compared with estimates of $11.22 billion.
Revenue at the company’s data center business rose 141% to $10.32 billion in the quarter ended July 30, beating analyst estimates of $7.69 billion by more than $2 billion, according to Refinitiv data.
"Its Q2 results underscore its dominant position in harnessing the AI momentum," said Insider Intelligence senior analyst Jacob Bourne. "Yet as global appetite for Nvidia's chips intensifies, navigating supply chain hurdles to boost production is essential."
To that end, Nvidia is spending big to secure supply. The company reported a 53% jump to $11.15 billion of inventory commitments from the previous quarter, largely because of the long-term supply needs for its data center chips.
Analysts expect revenue from Nvidia's data center segment to expand to as much as $40 billion for its fiscal 2025, according to Refinitiv estimates, driven by Nvidia's edge in AI chips and other related technologies such as the software to put those chips to work to power products like ChatGPT.
While rival Advanced Micro Devices' key AI chip is expected to pry away some market share from Nvidia next year, Nvidia’s software has a years' long lead over its CUDA competitor called ROCm, analysts believe.
Sales of chips destined for personal computers and data centers have been weak in recent months, which has hurt the chip industry. But AI is a bright spot, with cloud computing businesses and startups alike buying up AI-related chips from Nvidia and others such as Broadcom and Marvell Technology.
Analysts expect AI spending to continue growing at the expense of other traditional server equipment.
Revenue at Nvidia's gaming segment rose to $2.49 billion, above analyst estimates of $2.4 billion, according to Refinitiv data.
Excluding items, the company earned $2.70 per share in the second quarter, compared with estimates of $2.09, according to Refinitiv data.
For the current third quarter, Nvidia expects adjusted gross margin to be 72.5%, plus or minus 50 basis points. Analysts on average forecast gross margin to be 70.4%, according to Refinitiv data.
(Reporting by Chavi Mehta in Bengaluru, Stephen Nellis and Max A. Cherney in San Francisco and Noel Randewich in Oakland, Calif.Editing by Maju Samuel, Sayantani Ghosh and Matthew Lewis)