Nvidia left Wall Street in awe once again with stratospheric fiscal third quarter 2023 results driven by its booming artificial intelligence (AI) segment. Revenue surged 38% annually to a record $5.93 billion while profit rocketed over 500%. But shares surprisingly sank in late trading as investors took some chips off the table.
Despite the after-hours drop, Nvidia stock remains up a stellar 60% year-to-date in 2022 after more than doubling last year.
Turbocharged Growth Trajectory
Breaking down the numbers, Nvidia generated $18.12 billion in total sales during the quarter. Revenue from its core gaming business climbed 12% to $5.16 billion thanks to strong demand for the company’s GeForce RTX 30 gaming GPUs.
However, the undisputed star was the data center segment which sells GPUs for AI workloads. This business saw sales explode to $3.83 billion, up 55% annually. Data center now contributes a leading 31% of Nvidia’s total revenue.
“Adoption of AI continues to accelerate. Virtually every industry seeks better ways to apply AI to grow their business—from factory floor to operating room to classroom,” said CEO Jensen Huang. “We are still in the early innings of AI adoption and its impact.”
When including Nvidia’s networking, embedded and automotive segments, the company’s entire AI platform revenue surged a stunning 220% to reach $6.19 billion last quarter. This figure underscores Nvidia’s undisputed leadership in the AI chip industry.
For the current fiscal 2023, Nvidia expects a sizzling 54% revenue growth to $23.5 billion. Impressively, this guidance incorporates some anticipated impact from new U.S. restrictions on exporting high-end AI chips to China. Nvidia believes alternative products will offset much of this potential headwind starting early 2023.
AI Market Domination
Nvidia dominates the red-hot market for AI accelerators which are chips specialized to accelerate machine learning tasks like image recognition and language processing. The company owns over 80% market share in this niche, according to analysts.
Nvidia GPUs power leading cloud platforms from Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba Cloud. Its wide array of graphics and AI chips also support AI-based services from key players like IBM and Oracle.
With AI adoption booming across enterprises and cloud infrastructure spending growing 25% a year, Nvidia enjoys a tremendous growth runway for its data center business.
Despite the macro backdrop, Nvidia’s execution continues to shine,” lauded Wells Fargo analyst Aaron Rakers, who sees 30% long-term growth for its data center segment. “We see NVDA’s AI leadership supporting durable growth.”
Autonomous Driving Potential
In addition to its AI enterprise products, Nvidia is pioneering self-driving vehicle technology which represents another massive addressable market. During its GTC Europe 2022 conference, Nvidia unveiled a number of new autonomous trucking partnerships using its Drive Orin system-on-a-chip (SoC).
Nvidia also revealed that luxury electric vehicle maker Polestar plans to use Drive Orin chips in cars starting 2025. Management believes its automotive opportunity will be larger than gaming over the next decade.
Key Takeaways
- Nvidia delivered spectacular Q3 results, easily beating estimates as revenue grew 38% annually to a record $18.1 billion.
- Strength was broad-based across gaming, data center, auto and other segments. But AI was the brightest spot, surging 55% to reach over $3.8 billion.
- Nvidia dominates the high growth AI chip industry with over 80% market share in accelerators, the heart of AI infrastructure powering cloud and enterprise AI.
- With AI adoption still in early phases, Nvidia sees multi-year growth tailwinds for its data center business which sells GPUs for AI modeling.
- The company sees 54% revenue growth this year to $23.5 billion even as U.S. export rules hamper some high-end AI chip sales to China.
Top AI Stocks to Buy
Nvidia’s sparkling results highlight the tremendous growth runway for companies on the leading edge of artificial intelligence technology. AI has become indispensable for analyzing big data, improving business efficiency and unlocking innovation.
According to IDC estimates, global AI software spending will skyrocket from $37.5 billion in 2021 to $239 billion by 2025, translating into whopping 55% compound annual growth. This exponential growth is creating incredible investment opportunities.
Here are two top AI stocks every tech investor should consider buying:
Nvidia Stock
As the clear leader in AI chips powering cloud infrastructure, data centers and edge computing, Nvidia enjoys powerful competitive advantages. The company is also pioneering software platforms like Omniverse which enables real-time 3D collaboration critical for industries from manufacturing to architecture.
Nvidia estimates its total addressable market across its various segments will expand from around $100 billion today to $1 trillion over the next decade. With a commanding AI franchise and emerging opportunities in metaverse, Nvidia has visible runway for growth and deserves a premium valuation.
Microsoft Stock
Software behemoth Microsoft is transforming into an AI powerhouse as it ramps up investments through its Azure cloud platform. Microsoft is reportedly investing $10 billion into AI research lab OpenAI, maker of red-hot chatbot ChatGPT.
By integrating OpenAI models like Dall-E for image creation and Codex programming assistant into Office 365 and Azure, Microsoft can significantly expand its consumer and enterprise reach.
According to UBS analyst Karl Keirstead, Microsoft is “arguably the best way for investors to play the AI trend over the next three years.” He sees MSFT stock reaching $250 over the next 6-12 months.
Conclusion
With digital transformation accelerating across the global economy, AI-focused companies like Nvidia and Microsoft enjoy strong tailwinds supporting rapid growth.
Nvidia is the undisputed 800-pound gorilla in supplying key components like high-powered GPUs and AI accelerator chips that drive AI modeling and inference workloads.
Meanwhile Microsoft is positioned to infuse AI capabilities through Azure cloud and Office subscription services used by billions worldwide.
Savvy investors would do well to buy these AI leaders as part of a diversified, long-term portfolio.
