New York (CNN) — Nvidia’s earnings beat expectations and its revenue doubled from a year ago, but it was the potential for future growth that excited investors.
The chipmaker has seen soaring revenue sitting at the head of the AI boom. The company earned $96.2 billion in the most recent quarter, a 106% rise from a year ago, according to its earnings report on Wednesday. Revenue from sales to data centers, an overwhelming chunk of its business, was $89 billion, an increase of 117% from a year ago.
Despite those blockbuster numbers, shares didn’t take an upward turn until the company’s earnings call on Wednesday evening. CFO Colette Kress told investors that the company expected its fiscal 2028 income to grow by 70%. Analysts had expected 45%.
Nvidia (NVDA) shares rose more than 4% after-hours, reversing course after initially dipping following the earnings release.
Nvidia expects big growth because it is confident in the AI ecosystem’s growth – and its crucial role in it. It’s viewed as a bellwether for the state of the AI market because so much of the industry’s technology runs on its chips.
“Everybody wants to be part of the AI revolution. Everybody will have to be part of this computing shift, and everybody has to build infrastructure,” CEO Jensen Huang said on the earnings call.
The chipmaker is also increasing investments in other tech companies to help fund their AI infrastructure build-outs, spurring criticism of a circular financing strategy. The circular nature of many financing deals has raised concerns that demand for AI may be artificially inflated.
Nvidia and Amazon on Wednesday also announced a new deal that will expand the use of Nvidia’s semiconductor chips across Amazon’s data centers. Amazon Web Service is set to use an additional 2 million of Nvidia’s graphics processing units (GPUs) across its infrastructure. The deal expands on a previous announcement in March that AWS would use 1 million of Nvidia’s GPUs.
Nvidia shares are up about 12% this year, roughly in line with the S&P 500 and Nasdaq Composite. After years of enormous gains, Nvidia shares have seen more modest gains this year. Recent quarters have seen Nvidia post better-than-expected results only for its stock to dip following the report.
If Nvidia’s earnings are strong, the thinking goes, other leading tech firms will see sufficient future returns from AI to keep investing in its products — and investors can expect to keep seeing returns from the market.
But building AI infrastructure is incredibly expensive. The so-called hyperscalers that are building out data centers, like Meta, Microsoft and Google, have started to face tough questions from investors about whether those billions in investments will pay off — or if they should pull back their spending.
Some market watchers worry that exuberance over AI has bid up tech stocks too high — and that it’s a bubble waiting to burst.
Earlier this month, Nvidia announced a partnership with a group of Wall Street firms to allow its customers to borrow money to buy its products for their AI infrastructure.
Some analysts have questioned whether this circular financing strategy could be risky for Nvidia if those customers don’t see meaningful returns from that infrastructure.
“All of the AI services at some point are going to want to go around the world, and those data centers won’t necessarily be just built by them,” Huang said on Wednesday. “I think they’re going to run on Nvidia.”
The-CNN-Wire
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