Imagine spending years telling the world what a big deal AI is going to be, then watching a chatbot swoop in and take all the credit, along with all the responsibility for driving the next wave of AI hype.
That is what happened to Nvidia, which has spent years touting AI–and the billions-of-parameters task of training AI–as the major driver behind the performance and efficiency boosts it has designed into one new chip architecture after another. Nvidia founder and CEO Jensen Huang, through new numerous keynote speeches, product launch events, and fireside chats, has painted visions of data centers as emerging “AI factories” and their insatiable hunger for computing power.
Then, in late 2022, ChatGPT came along, went wild, and now the AI future seems to have a new champion, a hastily-released, (many say) imperfect, but very accessible and relatable interface to OpenAI’s large language models.
Yet, you will not hear Huang complaining about this turn of events. In fact, it might be the best thing to have happened to Nvidia at a time when the hype around AI had begun to show signs of deflating. How else do you explain the fact that Nvidia’s shares jumped 14% in the hours after the company reported fourth quarter earnings this week that included 21% lower year-over-year quarterly revenue?
More specifically, Nvidia reported $6.05 billion in revenue for the fourth quarter, which was down 21% from a year ago and increased just 2% from the previous quarter–but did beat consensus estimates. For fiscal year 2023, revenue was just under $27 billion, flat compared to a year earlier. Revenue from the gaming sector, which despite all the company’s maneuvering in the data center and AI segment is what many still see as Nvidia’s core business, plummeted 46% year-over-year. Overall, earnings per share were down more than 50% from a year ago.
However, revenue growth from the AI factory, er, data center market increased by 11% in the fourth quarter and by 41% for the full fiscal year, helping Nvidia to record-high yearly revenue of $15 billion in that category. Data center growth + AI hype has a way of making investors forget about declines in the gaming and PC markets. The $238 share price NVDA reached Feb. 23, the day after earnings were reported, was the stock’s highest point since last April, when the semiconductor sector began to sail into rough waters characterized by macroeconomic troubles and declining post-pandemic demand in segments like PCs.
By mid-day Feb. 24, Nvidia’s share price had drifted back to just over $231, but the good quarter bolstered Nvidia’s outlook. The company sees overall revenue growing to $6.5 billion for the first quarter of fiscal year 2024, and Nvidia CFO Collette Kress commented that Nvidia sees more data center growth happening in the current quarter and for the rest of the year. Perhaps because of that Huang seems more than happy to share the stage with ChatGPT, whose success, after all, was enabled by Nvidia GPUs.
“AI adoption is at an inflection point,” Huang said during Nvidia’s fourth quarter earnings call. “Open AI's ChatGPT has captured interest worldwide, allowing people to experience AI firsthand and showing what's possible with generative AI… Generative AI applications will help almost every industry do more faster. Generative large language models with over 100 billion parameters are the most advanced neural networks in today's world. Nvidia's expertise spans across the AI supercomputers, algorithms, data processing and training methods that can bring these capabilities to enterprise. We look forward to helping customers with generative AI opportunities.”
One analyst during the earnings call referenced a comment Huang made during a recent appearance at Berkley Haas University, where he described the current environment as being like "the iPhone moment for AI."
Huang responded, "The activity around the AI infrastructure that we build, like Hopper, and the activity around using Hopper and Ampere to inference large language models, has just gone through the roof in the last 60 days. And so there's no question that whatever our views are of this year as we enter the year it has been fairly, dramatically changed as a result of the last 60 to 90 days."