Generative AI has quickly become the killer app for accelerated computing platforms and the driving force behind a decade-long, worldwide data center upgrade cycle that is only in its beginning stages, according to Nvidia CEO Jensen Huang.
No wonder Nvidia’s stock price jumped 25% the morning after the company reported first quarter 2023 earnings this week. That earnings report included revenue for the quarter of $7.19 billion, which was down 13% compared to the same quarter last year, but up 19% over the fourth quarter of 2022. The sequential growth was driven largely by record data center revenue of $4.28 billion, an increase of 18% since the previous quarter, and a 14% boost over the first quarter of 2022.
“When generative AI came along, it triggered a killer app for this computing platform that's been in preparation for some time,” Huang said during Nvidia's Q1 earnings call, according to the Motley Fool earnings transcript. He added that the world’s data centers are ready to move on from “basically unaccelerated” infrastructure based around “CPUs and dumb NICs,” and that with generative AI becoming a primary data center workload “the budget of the data center will shift very dramatically toward accelerated computing.”
While data center capex budgets remain limited for now, something reflected in the data center revenue figures that other semiconductor companies reported for the first quarter of this year, Huang said Nvidia is “seeing incredible orders to retool the world's data centers… You're seeing the beginning of... a 10-year transition to basically recycle or reclaim the world's data centers” through the implementation of accelerated computing. It is a shift that not only supports the power boost needed for optimum performance of AI training and inference applications, but also drives the greater energy efficiency necessary to make the transition manageable from cost and energy consumption perspectives, he said.
In addition to the robust data center market, Nvidia also continued to see gains during the first quarter in the automotive market, a juggernaut revenue producer across the semiconductor market these days. First-quarter revenue from automotive was a record $296 million, up 114% from a year ago and up 1% from the previous quarter. Colette Kress, executive vice president and CFO of Nvidia, said the company’s automotive design win pipeline for the next six years is now up to $14 billion, $3 billion more than where it was a year ago.
The growth in the data center and automotive segments made up for a 38% year-over-year decline in revenue from the gaming market during the first quarter.
Kress said that generative AI demand is expected to continue to be a major revenue-driving force with demand coming from all types of customers, including consumer Internet companies, cloud service providers, enterprises, and AI start-ups. Nvidia expects second quarter revenue of about $11 billion. That would be well above the $6.7 billion revenue figure reported for Q2 2022.
And, Kress said she does not see supply issues being a drag on Nvidia’s bottom line in the short term. “We have also procured a substantial amount of supply for the second half,” she said during the call. “We have some significant supply chain flow to serve our significant customer demand that we see. And this is demand that we see across a wide range of different customers.”