NVIDIA Shares Surge As AI Powerhouse Rakes In Billions On Strong Data Center Earnings

NVIDIA CEO Jensen Huang wearing a leather jacket.
Investors are upbeat following NVIDIA's fourth quarter and fiscal 2023 financial results, with the company's share price surging after it beat out Wall Street's expectations. That's a despite a 21 percent year-over-year drop in quarterly revenue to $6.05 billion and a massive 46 percent decline in gaming revenue to $1.83 billion for the quarter.

Gaming is still an important part of NVIDIA's business model and focus, but unlike this time a year ago, it's no longer the company's top earner. A 46 percent drop is impossible not to notice, though NVIDIA's gaming division did at least see a 16 percent uptick compared to the previous quarter, in what company founder and CEO Jensen Huang deemed a recovery period as it gets ready for its GTC 2023 event.

"Gaming is recovering from the post-pandemic downturn, with gamers and enthusiastically embracing the new Ada architecture GPUs with AI neural rendering," Huang said.

He's referring to Ada Lovelace, the name of the underlying GPU architecture that powers NVIDIA's latest-generation GeForce RTX 40 series graphics cards. First launched in September of last year, the current desktop lineup consists of the GeForce RTX 4090, GeForce RTX 4080, and GeForce RTX 4070 Ti. Laptops based on mobile variants of Ada Lovelace are also starting to hit store shelves.

During an earnings call, NVIDIA CFO and EVP Colette Kress stated that the decline in gaming revenue compared to last year also "reflects the impact of channel inventory correction, which is largely behind us." Based in part on stores routinely selling out of GeForce 40 series cards and the infusion of updated gaming laptops hitting the market, NVIDIA seems confident that it's weathered the storm.

Chart of NVIDIA's revenue in each of its business categories.
Source: NVIDIA

Nevertheless, it's NVIDIA's efforts in AI and the data center that are paying off in the biggest way (just like last quarter). Fourth quarter data center revenue reached $3.62 billion, which is up 11 percent from a year ago and 6 percent sequentially. NVIDIA generated nearly twice as many dollars from its data centers chips (which leverage AI) and services than it did from its gaming business.

It's also one of just two categories that saw a year-over-year growth. The other is automotive, which skyrocketed 135 percent annually and 17 percent sequentially to $294 million in the fourth quarter. Notably, AI technologies play a role in NVIDIA's automotive business too.

"AI is at an inflection point, setting up for broad adoption reaching into every industry," Huang said. "From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI. We are set to help customers take advantage of breakthroughs in generative AI and large language models. Our new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 networking fabric, is in full production."

While it's easy to be cynical about the overuse of the term "AI," Huang is not wrong in his assessment. From smartphone features to upscaling in games, to self-driving cars and supercomputing, AI is practically everywhere. It's also a hot topic at the moment, with OpenAI's ChatGPT and competing technologies (like Google's Bard) dominating the headlines.

Investors agree and are obviously encouraged by what NVIDIA is doing and its latest financial figures—shares of the company are up over 12 percent in early morning trading. Looking ahead, NVIDIA anticipates generating $6.5 billion (plus or minus 2 percent) in the first quarter of its fiscal 2024.