Nvidia sales beat estimates as data centers fuel growth

Nvidia sales beat estimates as data centers fuel growth

(Bloomberg) – Nvidia Corp., America’s most valuable semiconductor maker, posted quarterly sales that beat analysts’ estimates after its data center business helped offset weak demand for gaming chips video.

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While revenue fell 17% to $5.93 billion in the fiscal third quarter, that was well above the average estimate of $5.79 billion. Data center revenue jumped 31%, also beating forecasts, compared to a 51% decline for the company’s gaming business.

Nvidia shares gained more than 2% in late trading Wednesday. They had closed at $159.10 earlier, down 46% for the year.

Although Nvidia’s fourth-quarter guidance was a little soft, the report eased investor fears that the industry is deteriorating further. Owners of large cloud computing facilities are increasingly using Nvidia’s graphics chips to handle artificial intelligence tasks, and the company has held up better than the booming personal computer market.

Data center sales were helped by orders from U.S. cloud service providers as demand weakened in China, Nvidia said. The division generated $3.83 billion in total, compared to an estimate of $3.79 billion.

Nvidia announced further inroads into the data center market earlier on Wednesday, when it said Microsoft Corp. would use its graphics chips, networking products and software for a new AI offering. Nvidia management has argued that its wide range of technologies for such systems gives it an advantage over competitors with partial solutions.

Data centers are a beacon of hope in an IT industry still mired in a slump. Makers of laptop and desktop computer chips have suffered a sharp drop in orders this year as recession-worried customers postpone purchases of expensive electronics. This has led to a buildup of inventory that the industry has yet to overcome.

“We are rapidly adapting to the macro environment, correcting inventory levels and paving the way for new products,” chief executive Jensen Huang said in a statement.

After a massive surge in demand for home desktop computers during the pandemic, spending on devices has collapsed faster than expected. Company executives have argued that supply chain disruptions over the past three years have distorted the market, accentuating periods of industry booms, and now, busts. The hope is that businesses and consumers will eventually return to a higher level of spending than before the pandemic.

The company expects fourth-quarter revenue to be around $6 billion, plus or minus 2%. That compares to an estimate of $6.09 billion. Third-quarter earnings were 58 cents per share excluding certain items, below the 70-cent projection.

Nvidia built its reputation making electronics for gaming PCs, and that company has been hammered with the broader PC market. Still, the division’s 51% drop last quarter wasn’t as bad as some analysts feared. Nvidia’s GeForce graphics chips are a must for high-end PC owners looking for the most realistic gaming experience. The chips have also become popular with digital currency miners, although the crypto rout and changes in how the asset is mined have undermined this market.

Nvidia is also caught in the worsening impasse between China and the United States. Washington is increasingly trying to cut off the Asian country from advanced chip technology, threatening Nvidia’s access to that market.

Nvidia’s top AI offerings are now subject to licensing requirements for exporting to China, a hurdle the company says could cost it hundreds of millions of dollars in lost revenue. Nvidia recently launched a new offering for this market which it says complies with the restrictions.

The Santa Clara, Calif.-based company said Wednesday that sales of other chips helped offset the slowdown in China.

(Updates with additional results from the second paragraph.)

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