Nvidia blew past Wall Street financial targets in its third quarter, posting a 62% surge in revenue and better-than-expected growth for the current quarter, as executives shrugged off concerns of a potential AI bubble and added fuel to the fire, forecasting trillions of dollars in industry-wide spending on AI infrastructure by the end of the decade.
“There’s been a lot of talk about an AI bubble,” Nvidia CEO Jensen Huang said during a conference call on Wednesday. “From our vantage point, we see something very different.”
Nvidia’s stock rose as much as 5.7% in after hours trading, after finishing the regular session up 3%.
“Blackwell sales are off the charts, and cloud GPUs are sold out,” Huang said in a prepared statement, referring the most advanced version of the company’s chip used by AI providers like Meta, OpenAI, Microsoft and Google. The strong demand led Nvidia to project fourth-quarter revenue between $63.7 billion and $66.3 billion, well above the $62.4 billion that analysts were expecting.
Nvidia’s better-than-expected results come as investors and industry observers worry about whether the red hot AI market is a bubble that on it’s way to a devastating burst, with questions swirling about whether AI services will generate sufficient revenue to keep pace with the staggering capital expenditures and energy required to build and run next-generation models.
In a conference call with investors on Wednesday, Nvidia executives stressed the underlying strength of the market, citing “visibility” into $500 billion in spending on its most advanced chips over the next 14 months, and a stunning $3 trillion to $4 trillion in annual spending industry-wide on AI infrastructure by the end of the decade.
“We are preparing for significant growth ahead,” said Nvidia CFO Colette Kress on the call.
During the third quarter, sales in the company’s datacenter unit, which accounts for the vast majority of Nvidia’s business, expanded 66% year-over-year to $51.2 billion, compared to the $49.7 billion expected by analysts. Overall revenue of $57 billion was above Nvidia’s own projections and topped the $55.5 billion expected by Wall Street.
Nvidia posted $31.9 billion of net income in the third quarter, or $1.30 per share, compared to the $1.25 EPS expected by analysts.
Bubble talk
A pioneer of graphics processing chips, or GPUs, originally used for video games, Nvidia has emerged as the dominant provider of the processors that power generative AI services like ChatGPT and Google Gemini. Nvidia’s lock hold on the AI chips market has caused investors to pour into its shares, making it one of the world’s most valuable stocks with a $4.5 trillion market cap.
The company’s GPU chips are in high-demand among cloud providers and have are at the center of geopolitical issues like the U.S.-China trade war, with the U.S. Having banned sales of the most advanced Blackwell chips to China. A modified H20 chip designed for China has been caught up in political uncertainty. The company said that data center chip sales to China were essentially nil in the third quarter, with no changes expected in the current quarter.
While input costs were rising, Nvidia said it expects to continue to be able to generate gross profit margins in the mid-70s percentage levels.
Huang touted his company’s longstanding role working with AI model makers, pointing to a relationship with OpenAI that dates back to 2016. “I delivered the first AI supercomputer ever made to OpenAI,” he said. He defended the billions of dollars in investments that Nvidia is making in some AI companies, pointing to the importance of ensuring that its silicon powers all the top AI models.
“We run OpenAI, we run Anthropic, we run xAI,” he said. “We run them all.”
Some of those deals have raised concerns over a “circular” business model that could overstate the true level of demand for AI products. In recent weeks, investors have been reassessing expectations, said Daniel Newman, analyst and CEO of the Futurum Group: “Has there been too much exuberance? Is this demand real?”
Case in point: In the deal announced Tuesday, Nvidia and Microsoft will invest up to $10 billion and $5 billion, respectively, in Anthropic. In turn, Anthropic will purchase $30 billion of Azure compute capacity, while also collaborating with Nvidia on future chip and model-engineering work. This follows Nvidia’s $6.6 billion investment in OpenAI in October and a $6 billion investment in Elon Musk’s xAI in November, per PitchBook, as well as its commitment to invest up to $100 billion in OpenAI in a massive September deal that sent the stock higher.
In response to an analyst question about the investments on Wednesday, Huang noted that the deal with Anthropic means the startup will use Nvidia chips for first time. “We’re expanding the reach of our ecosystem and we getting a share and investment in what will be a very successful company,” Huang said.