As chatbots boom, Nvidia’s sales outlook exceeds Wall Street expectations

Feb 22 (Reuters) – Chip designer Nvidia Corp (NVDA.O) is forecasting first quarter revenue higher than Wall Street estimates on Wednesday, as the CEO said using its chips to power artificial intelligence (AI) services such as chatbots power had “gone through the roof” in the past 60 days.”

The sales outlook sent Nvidia shares up 8% during extended trading. The world’s largest supplier of chips used in data centers for training AI has become a major hardware supplier to major technology companies such as Microsoft Corp. (MSFT.O) building services such as chat-powered search engines.

AI is one of the few areas that tech companies are still spending money on, even as the industry cuts jobs. Microsoft and Alphabet Inc (GOOGL.O), for example, are both laying off thousands of employees, but are also in a race to imbue their search engines with chatbot technology – despite the fact that this will likely add billions of dollars to their operating costs.

Analysts believe that Nvidia, more than any other company, is best positioned to take advantage of such higher costs as it dominates about 80% of the market for graphics processing units, or GPUs, used to accelerate AI work .

On a conference call with investors, Nvidia Chief Executive Jensen Huang announced a new service where Nvidia will offer its cloud computing service directly to companies to rent all of its technologies to develop their own “generative” AI services that integrate text, images, and other forms of data.

AI is still “not widely deployed in enterprises, but we believe that by hosting everything in the cloud, from the infrastructure through the operating system software to pre-trained models, we can accelerate the adoption of generative AI in enterprises,” Huang said. .

The company expects revenue of $6.50 billion for the current quarter, plus or minus 2%. Analysts expect an average of $6.33 billion in revenue, according to data from Refinitiv.

Revenue for the quarter ended January 29 was $6.05 billion, compared to the median analyst estimate of $6.01 billion.

“The launch of generative AI models and the AI ​​arms race taking place should drive accelerated adoption of the company’s new H100 products,” said Logan Purk, an analyst at Edward Jones.

Nvidia’s outlook also contributed to the rise in share prices of competitors such as Advanced Micro Devices (AMD.O), whose shares rose 3% following Nvidia’s results.

The Santa Clara, California-based company got its start in the PC graphics chip business by making video games look more realistic. While revenue beat Wall Street’s expectations, Nvidia’s revenue was still down year-over-year as the company weathered a downturn in the PC market.

But growth in the data center chip market has remained solid. Analysts at Bank of America Global Research believe the emergence of so-called generative AI like chatbots and image creation services could add $14 billion more to Nvidia’s revenues by 2027.

Nvidia’s revenue from its data center business was $3.62 billion for the fourth quarter, slightly short of analyst estimates of $3.84 billion. Gaming chip sales totaled $1.83 billion, surpassing analyst estimates of $1.52 billion, according to Refinitiv data.

Adjusted earnings were 88 cents per share for the fourth quarter, better than analyst estimates of 81 cents.

Reporting by Chavi Mehta in Bengaluru, Stephen Nellis in San Francisco, and Jane Lee in Oakland, California; Edited by Shinjini Ganguli, Peter Henderson, Matthew Lewis and Himani Sarkar

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