Nvidia records $US45.5 billion profit, 85 per cent sales growth in latest quarter, stock falls
Nvidia’s profit topped $63 billion in just three months to April 26, although its stock fell in the after hours market as investors perhaps look to competitive risks.
Wall Street’s golden child Nvidia delivered a $US45.5 billion ($63.4 billion) profit and rocketing 85 per cent sales growth to $US81.6 billion for the quarter ending April 26, on Thursday morning.
Nvidia’s unparalleled and historic rise is based on demand for its graphic processing units (GPU) from the likes of Instagram-owner Meta, Google-owner Alphabet, Amazon, Microsoft, Tesla, Uber, ChatGPT and Anthropic.
Its GPUs act as the artificial brain of computers to power robots, self-driving cars, algorithms or online agents that perceive and understand the world on behalf of users.
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By continuing you agree to our Terms and Privacy Policy.“The build-out of AI factories — the largest infrastructure expansion in human history — is accelerating at extraordinary speed,” said chief executive Jensen Huang.
“Agentic AI has arrived, doing productive work, generating real value and scaling rapidly across companies and industries.”
Nvidia’s standout success means it can also charge huge amounts for the GPUs that often sell out as it cannot manufacture them fast enough.
The demand translated into a net profit margin of 55.7 per cent in the quarter, as nearly $US56 from every $US100 in sales turned into profit for shareholders.
The unprecedented success has catapulted shares 1390 per cent over the past five years from $US14.99 to $US223.47. Since the launch of ChatGPT in November 2022 they have catapulted 14-fold higher.
Nvidia shares eased 1 per cent in futures market on the Nasdaq exchange as the world’s largest company - worth around double the entire ASX - forecast for sales of $US91 billion in the second quarter, slightly missed analysts’ expectations.
Competitive risks, circular financing
“Nvidia is fascinating as it shows the AI trade is brilliant, but it also brings concentration risk as one of area of the economy is sucking in all these resources for extraordinary profits,” said Kyle Rodda, a Senior Market Strategist at Capital.com.
“But it’s dragging down other areas of the economy, so we get a two tier market.”
Other professional analysts suggest Nvidia’s 56 per cent net-profit margins are ripe for competition as its customer base searches for cheaper alternatives and it’s nagging doubts about whether it can replicate its success over the next five years that is keeping a cap on its share price.
Key Nvidia customers, Google and Amazon are both working to manufacture their own chips. While Facebook-owner Meta has expressed an interesting in buying Google’s chips, as a cheaper alternative to Nvidia.
For now, Nvidia is on track to generate about $US190 billion in free cash flow this year and $US320 billion next year and chief financial officer Colette Kress told its earnings call it plans to return around 50 per cent of free cash flow to investors this year.
But its estimated $US190 billion profit windfall is so large that it has often financed smaller companies to effectively become its customers.
According to professional research, Nvidia committed around $US90 billion in investment and partnership deals over the last 16 months. The investments - often touted by Mr Huang - spanned more than 145 companies, including AI model developers, cloud computing service providers, and infrastructure suppliers.
In all, Nvidia is now the second-biggest investor in other tech companies behind only the world’s second most valuable in Alphabet-owner Google.
Critics argue Nvidia is pursuing circular financing, also known as vendor financing. This is where it invests heavily in AI start-ups or data centre developers who then purchase its GPUs in return.
That way capital in the form of its profits is recycled back to Nvidia, although the sustainability of this strategy or the ultimate return on these speculative investments is unclear.
It also ramped its quarterly dividend from US1 cent per share to US25 cents per share, although that appeared insufficient to meet investors’ high expectations.
“So growth is very strong, but we’re in a resource constrained environment,” said Mr Rodda.
“For Australia (the ASX) hard resources and assets used for the AI build-out is where the ongoing strength will be. So, think copper for data centres and other critical minerals or rare earths.
“Another thing not being mentioned much is the success and growth of AI mostly in the US is just increasing competition for resources across the globe - and mechanically that’s driving up inflation and interest rate expectations.”
Despite the big dividend hike, Nvidia’s founder and chief executive Jensen Huang appears sure to reinvest for growth, rather than turn the company into a broader cash cow for shareholders.
According to Mr Huang the AI boom is just getting started, so it wouldn’t make sense to do anything else.
