"Nvidia Corp. reported a fall in quarterly profit and pointed to artificial intelligence language-generation tools as a potential boon for its business.
The generative AI technology that has become the hot topic in Silicon Valley is at "an inflection point," Chief Executive Jensen Huang said in a call with analysts and could supercharge the value of the market for its chips.
Nvidia is poised to profit from the excitement about generative AI tools that promise to deliver cogent text with limited prompting, analysts say, giving it some relief from a postpandemic falloff in demand for electronics and computers that its chips feature in.
Microsoft Corp. has started to use one such tool in its Bing search engine, and other big tech companies are working on their own versions.
Advanced Nvidia chips are the only viable products that can be used to create these AI systems, UBS analysts said in a recent note, adding that they estimated the ChatGPT tool Microsoft is using required around 10,000 of Nvidia's graphics chips.
Nvidia Chief Financial Officer Colette Kress said Nvidia was working with all the major cloud-computing providers, which include Amazon.com Inc., Microsoft and Google, on generative AI tools. "The opportunity is significant and driving strong growth in the datacenter that will accelerate through the year," she said.
Nvidia also said it was launching a new cloud-services business to tap into growing enthusiasm for AI. The service, which would be offered through major cloud-computing providers, is intended to make the development of AI tools including chatbots more accessible to a range of businesses, Mr. Huang said.
Nvidia built its business by catering to PC videogamers who crave high-resolution graphics and fast frame rates but in recent years has aimed to diversify. Nvidia's graphics-processing chips turned out to be well-suited to AI computations, and the company catered to that market as machine learning and other AI-infused applications have become more common.
Nvidia disclosed the new AI push as it reported that quarterly sales fell by 21% to $6.05 billion, while net income more than halved to $1.41 billion. The results were better than expected in a survey of analysts by FactSet. For the current quarter, Nvidia is expecting $6.5 billion in sales, also topping Wall Street forecasts.
Nvidia's gaming business, which has until recent quarters been its main source of revenue, saw sales drop 46% from the year-prior period, although they rose compared with the previous period.
"Gaming is recovering from the postpandemic downturn," Mr. Huang said Wednesday.
Nvidia's shares rose 8.8% in after-hours trading.
While Nvidia and other chip makers enjoyed a period of bumper profits at the outset of the pandemic as homebound workers and learners bought up computers and gaming systems, that trend reversed over recent months.
Rising interest rates and a period of prolonged high inflation put a damper on consumer spending, sending sales of personal computers, smartphones and other consumer electronics plummeting. PC shipments are expected to decline by 12.5% this year, according to a recent Morgan Stanley estimate. Those shipments already fell by more than 16% last year, according to Gartner Inc.
Despite results that exceeded expectations, Nvidia flagged weakness in China. Datacenter sales declined compared with the previous quarter, Ms. Kress said.
Cloud-computing companies had also paused spending at the end of last year amid growing economic uncertainty, she said." [1]
1. Nvidia Sees AI Booming, Videogames Recovering
Fitch, Asa. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 23 Feb 2023: B.4.
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