Nvidia Sales Beat Estimates as Data-Center Business Fuels Growth

Nvidia Sales Beat Estimates as Data-Center Business Fuels Growth

(Bloomberg) — Nvidia Corp., the most valuable US semiconductor maker, posted quarterly sales that topped analysts’ estimates after its data-center business helped offset sluggish demand for video-game chips.

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While revenue declined 17% to $5.93 billion in the fiscal third quarter, that handily beat the $5.79 billion average estimate. Data-center revenue jumped 31%, also beating projections, compared with a 51% drop 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.

Though Nvidia’s fourth-quarter forecast was a little light of estimates, the report allayed investors’ 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 that business has held up better than the sputtering personal-computer market.

Data-center sales were helped by orders from US cloud service providers, with demand weakening in China, Nvidia said. The division generated $3.83 billion in total, compared with a $3.79 billion estimate.

Nvidia announced further inroads into the data-center market earlier Wednesday, when it said that Microsoft Corp. will use its graphics chips, networking products and software for a new AI offering. Nvidia’s leadership has argued that its broad range of technology for such systems gives it an advantage over competitors with partial solutions.

Data centers are a bright spot in a computing industry still mired in a slump. Makers of chips for laptops and desktops suffered a steep decline in orders this year as recession-wary customers put off big-ticket electronics purchases. That led to a buildup in inventory that the industry still needs to work through.

“We are quickly adapting to the macro environment, correcting inventory levels and paving the way for new products,” Chief Executive Officer Jensen Huang said in a statement.

After a massive spike in demand for home-office computers during the pandemic, spending on the devices collapsed more quickly than expected. Company executives have argued that supply-chain disruptions over the last three years have caused distortions in the market, accentuating the industry’s boom times, and now, its bust. The hope is that companies and consumers will eventually return to a level of spending that’s higher than before the pandemic.

The company expects fourth-quarter revenue to be about $6 billion, plus or minus 2%. That compares with an estimate of $6.09 billion. Third-quarter profit came in at 58 cents a share, excluding some items, short of the 70-cent projection.

Nvidia built its reputation making electronics for gaming PCs, and that business has gotten hammered along with the broader PC market. Still, the division’s 51% decline last quarter wasn’t as bad as some analysts feared. Nvidia’s GeForce graphics chips are a must-have for high-end PC owners looking for the most realistic gaming experience. The chips also became popular with digital currency miners, though the crypto rout and changes to the way the asset is mined have undercut that market.

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

Nvidia’s best AI offerings are now subject to licensing requirements for export to China, a hurdle that the company said may cost it hundred of millions of dollars in lost revenue. Nvidia recently debuted a new offering for that market that it says is compliant with the restrictions.

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

(Updates with additional results starting in second paragraph.)

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