Market Analysis

Nvidia's Growth Forecast Signals AI Chip Demand is Thriving

Amos Simanungkalit · 28 Feb23.5K Views

Image Credit: MSN

Nvidia's strong growth forecast for Q1, announced on Wednesday, highlighted sustained demand for its AI chips, with the company reporting "amazing" orders for its new Blackwell semiconductors. This forecast helped dispel concerns about a potential slowdown in hardware spending, which had been fueled by claims from Chinese AI startup DeepSeek about developing AI models that rival Western counterparts at a lower cost.

Despite a slight dip in after-hours trading, Nvidia's shares had risen 3.7% during regular trading. The company has seen a significant boost from the AI stock rally, with its shares up more than 400% over the past two years.

CEO Jensen Huang expressed optimism, emphasizing that AI advancements are "moving at light speed," and that demand for Blackwell chips remains strong. He noted that Nvidia had ramped up large-scale production of Blackwell AI supercomputers, achieving billions in sales in the first quarter alone.

Nvidia is undergoing a major product transition to the Blackwell architecture, moving from individual chips to integrated AI systems that combine graphic chips, processors, and networking equipment. In Q4, Nvidia generated $11 billion from Blackwell-related products, which made up about 50% of its total data center revenue.

The company expects Q1 revenue of $43 billion, surpassing analysts' forecast of $41.78 billion. While there were concerns about DeepSeek's cost-effective AI models and the Blackwell rollout, Nvidia's results have helped quell doubts.

However, the ramp-up of Blackwell production has been challenging and costly, impacting Nvidia's margins. For Q1, Nvidia's forecasted gross margin of 71% is slightly below Wall Street's expectation of 72.2%. Still, CFO Colette Kress reassured investors that Nvidia expects margins to return to the mid-70% range later in the year as production increases and costs decrease.

Despite DeepSeek's breakthroughs, Nvidia's momentum with major cloud providers, or "Hyperscalers," appears unaffected, according to Third Bridge analyst Lucas Keh. Additionally, Nvidia's products were selected for the Stargate data center project announced by President Donald Trump.

Nvidia posted an adjusted per-share profit of 89 cents, surpassing the estimate of 84 cents, while Q4 revenue surged 78% to $39.3 billion, exceeding expectations of $38.04 billion. Data-center sales grew 93% to $35.6 billion, outpacing the forecast of $33.59 billion, although growth was slower compared to the previous quarter.