Nvidia Surges After Upbeat Forecast Shows Chip Demand Is Strong

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Nvidia Corp., the largest U.S. chipmaker by market value, rallied the most in five months after reporting a surge in earnings and giving predictions that exceeded even rosy Wall Street estimates. 

The shares increased as much as 7.6% in New York trading as analysts praised the company’s performance and pointed to improving prospects. That gain puts it on course for its best one-day gain since March 9. The stock is up more than 50% this year giving Nvidia a market capitalization of more than $500 million, more than twice that of Intel Corp.

“Things are firing on all cylinders here as Nvidia experiences two of their strongest product cycles in their history simultaneously as both their core gaming and datacenter segments over deliver, with numerous avenues for long term growth still to come,” Sanford C. Bernstein analyst Stacy Rasgon wrote in a note. “This story still feels like it has some room to run.”

Revenue in the current quarter will be about $6.8 billion, the Santa Clara, California-based company said late Wednesday. That compares with a $6.54 billion average analyst estimate, according to data compiled by Bloomberg.

Nvidia’s 3D graphics processors are key to running video games -- a market that’s been soaring during the pandemic. But it can’t get enough chips from outsourced manufacturers, a problem plaguing much of the semiconductor industry right now. The company also warned that its bid to acquire Arm Ltd. is taking longer than expected. 

“Demand is going to outstrip supply for some time,” Chief Executive Officer Jensen Huang said on a conference call with analysts. “The good news is we’ve secured enough supply to meet our growth targets.”

Nvidia Surges After Upbeat Forecast Shows Chip Demand Is Strong

Nvidia reported sales of $6.51 billion in the second quarter, topping the $6.33 billion prediction. Earnings came in at $1.04 a share, excluding some items, compared with an estimate of $1.01.

Huang, who founded Nvidia in 1993, has built the once-niche chipmaker into an industry giant by winning orders for his products outside of their gamer-PC base. The company has reported average revenue growth of 55% over the last six quarters. 

Nvidia’s data center unit had sales of $2.37 billion in the quarter, up 35% from a year earlier. Gaming-related revenue jumped 85% to $3.06 billion.

So-called CMP chips -- designed specifically for cryptocurrency miners -- generated revenue of $266 million in the quarter, lower than the company had forecast.

Nvidia is one of the pioneers of outsourcing production and has never owned its own factories. Like its peers and rivals, the company depends on Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. to build its chips.

The whole of the industry has suffered from shortages caused in part by pandemic lockdowns. And Nvidia said that supply constraints would continue through the majority of next year.

The company expects the majority of the growth in the current quarter to come from its data-center unit. Growth in gaming chips will be limited because of the supply constraints, and sales of its cryptomining products will be “minimal,” Nvidia said.

Meanwhile, Nvidia’s plan to use the Arm deal to expand further faces challenges. After Nvidia agreed to acquire Arm from Japan’s SoftBank Group Corp. last year, the transaction has met with regulatory opposition. Some other companies in the chip industry also have voiced concerns about the transaction, but Nvidia said Wednesday that it was pushing ahead.

The deal would give Nvidia access to chip designs used by the world’s biggest technology companies, including makers of smartphones, factory equipment and cars.

“Although some Arm licensees have expressed concerns or objected to the transaction, and discussions with regulators are taking longer than initially thought, we are confident in the deal and that regulators should recognize the benefits of the acquisition to Arm, its licensees, and the industry,” the company said.

Bloomberg reported earlier this month that the U.K. was considering blocking the takeover due to potential national-security risks. It wasn’t clear how Arm changing from Japanese to American ownership would affect U.K. national security, but there have been broader concerns about Arm’s ability to stay neutral if it’s acquired by Nvidia.

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