Despite Slowdown in China Sales, Nvidia Surpasses Q4 Estimates and Predicts Positive Q1 Outlook

Nvidia (NVDA) announced its smashing Q4 earnings after market close on Wednesday. The tech behemoth surpassed projected estimates with remarkable earnings per share (EPS) and revenue figures. The release triggered a surge in Nvidia's stock price by over 5%.

For Q4, Nvidia reported an adjusted EPS of $5.16, significantly surpassing the anticipated $4.60. The company's Q4 revenue stood at a whopping $22.1 billion, comfortably topping analysts' forecast of $20.4 billion. This signifies a huge leap from last year's same quarter, where Nvidia reported an EPS of $0.88 from a revenue of $6.1 billion. Nvidia's impressive performance is further highlighted by its total revenue for 2022, which tallies up to $27 billion.

The chipmaker also raises the bar for Q1 projections, anticipating a revenue of $24 billion, indicating an error margin of 2%. Wall Street had placed its Q1 estimates at the figure of $21.9 billion.

CEO Jensen Huang expressed optimism and excitement about the company's performance. He pointed to the widespread demand for accelerated computing and generative AI, attributing it as the driving force behind the company's success. He further mentioned the significant contribution of Nvidia's Data Center platform to the increased revenue flow.

However, Nvidia also reported a drawback to its fourth quarter performance. CFO Colette Kress revealed that Q4 data center revenue from China declined substantially due to U.S licensing regulations. The U.S government has imposed restrictions on the sale of specific Nvidia chips to China, attributing the decision to suspected military application concerns.

Despite these obstacles, the earnings of Nvidia's core Data Center venture, which encompasses the sales of its high-powered GPUs for AI applications, reached $18.4 billion, outshining the earlier forecast of $17.2 billion. Compared to the same period last year, when the revenue stood at $3.62 billion, Nvidia's Data Center revenue increased by an impressive 217%.

Nvidia's gaming business, another significant player, generated revenue worth $2.9 billion, exceeding investors' expectation of $2.7 billion, an upshot from last year's figure of $1.8 billion. Nvidia's share price has experienced a 200% surge over the last year, surpassing competitors like AMD (AMD), and Intel (INTC) courtesy of its position as a leading AI chip maker.

However, Nvidia's path forward is not void of challenges. Its primary competitor, AMD, is heavily investing in AI chips, including the newly introduced MI300X, claiming to outperform Nvidia’s H100 in designated workloads. Additionally, Intel is improving the capability of its server chips.

Moreover, Nvidia's customers are exploring the design of their bespoke AI chips to reduce reliance on Nvidia. Tech giants like Amazon, Google, Meta, Microsoft, and Tesla are either currently offering or in the process of developing their AI chips.

To counteract this threat, Nvidia is reportedly in discussion with industry leaders like Alphabet, Amazon, Meta, Microsoft, and OpenAI for custom chip manufacturing requirements. The company's initiative becomes crucial considering more than half of its Data Center Q4 revenue originated from large cloud providers for internal tasks and external customer requirements.