Heard on the Street: Nvidia Deflates Worries of an 'Air Pocket' in Sales -- WSJ

By Dan Gallagher

Nvidia has a hot new product coming. Luckily for the chip maker, most of its customers cant afford to wait around for it.

Nvidias share price jumped 10% Thursday following a quarterly report and forecast that was well ahead of Wall Streets forecasts. Such beats have become par for the course for the company whose chips are must-haves for the many tech giants and startups racing to build generative artificial intelligence services. But investors were growing worried that Nvidia would also become a victim of its own success, in that many of those customers might start to delay purchases ahead of a major upgrade launching later this year.

Such an air pocket in sales growth would be bad for a stock that was already running hot. But Nvidia noted on its earnings call Wednesday night that demand for its current Hopper systems is still outpacing supply and is expected to continue doing so. Waiting for the new systems known as Blackwell would cost companies valuable time in building their AI services. Everybody is anxious to get their infrastructure online, Nvidia CEO Jensen Huang said on the call. And the reason for that is because they're saving money and making money, and they would like to do that as soon as possible.

Huang also added that the company expects a lot of Blackwell revenue this year, implying a potentially earlier launch than analysts had anticipated. But Hopper clearly still has legs. Analysts expect the Hopper line to account for 65% of Nvidias data center revenue for the current fiscal year ending in January and 21% next year despite the full availability by then of the newer Blackwell systems, according to consensus estimates from Visible Alpha.

Nvidiais giving very little air to investor concerns that there could be any pause ahead of Blackwell shipments, Tim Arcuri of UBS wrote in a note to clients Thursday. We, along with many investors, had worried about the risk of a potential air pocket ahead of Blackwell, wrote Christopher Rolland of Susquehanna. He added that the comments from the call "have helped to alleviate our fears.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._

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May 23, 2024 11:30 ET (15:30 GMT)

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