Nvidia bets on new data center chips for growth as sales outlook tops estimates
Nvidia's Growth Strategy and Market Outlook
By Stephen Nellis, Max A. Cherney and Zaheer Kachwala
May 20 (Reuters) - Nvidia CEO Jensen Huang on Wednesday aimed to assure investors that the world's most valuable company can keep up its blockbuster growth with the help of a broad base of customers and that new products will help it beat the $1 trillion in sales it has forecast for its flagship AI chips.
Shares fell 1.6% in extended trading, however, a sign that investors believe Nvidia will face tougher competition even though it forecast second-quarter revenue above Wall Street estimates and announced an $80 billion share repurchase program.
Nvidia expects revenue of $91 billion, plus or minus 2%, compared with estimates of $86.84 billion, according to data compiled by LSEG.
The company's results are largely considered a barometer for the AI market's health, as its chips are used in virtually every major data center in the world, powering the largest and most advanced AI models.
Investor Sentiment and Analyst Perspectives
"Nvidia delivered another beat, but at this point that's essentially priced in as it keeps beating quarter after quarter," said eMarketer analyst Jacob Bourne. "The lingering question is whether it can convince investors the AI buildout has durability into 2027 and 2028, especially as the narrative shifts toward inference workloads and competing silicon from Google, Amazon, AMD, and Intel."
The company also said it would increase its quarterly cash dividend to 25 cents per share from 1 cent.
AI Infrastructure Spending Trends
Spending on AI infrastructure continues to grow rapidly, with U.S. tech giants, including Alphabet, Amazon and Microsoft, expected to spend more than $700 billion on AI this year, a sharp jump from around $400 billion in 2025.
Nvidia's Position Among Hyperscale Customers
Huang told analysts on a conference call that he believes Nvidia will grow faster than those "hyperscale" customers, pointing to a new sub-segment of customers in its data center business that includes AI-specific cloud firms. Sales to those customers were roughly equal to the large cloud players, but grew faster quarter-over-quarter.
"We should be growing faster than hyperscale capex," Huang said.
Rising Competition from Custom Chips
While heavily relying on Nvidia's expensive processors, many of Nvidia's biggest customers are also pouring funds into developing their own custom chips to run models, posing a risk to Nvidia's long-held dominance over the chip industry.
Nvidia is facing competition not only from Big Tech but also from other chip rivals, including Intel and Advanced Micro Devices, which have touted a large revenue opportunity from selling CPUs to serve the inference market.
Nvidia's Defensive Moves
Nvidia has made moves to defend its position. It unveiled a new central processor and AI system built on technology from Groq - a chip startup specializing in inference - in March.
Vera Chip Targets New Market
During the conference call, Huang said Nvidia's new "Vera" central processors give it access to a new $200 billion market. Nvidia expects $20 billion in revenue from Vera chip sales by the end of this fiscal year, which Huang confirmed was not included in the company's earlier $1 trillion estimate of "Blackwell" and "Rubin" AI chips between 2025 and 2027.
Revenue Projections for Vera and Other Chips
"I expect (Vera) to be the second largest" sales contributor beyond the $1 trillion in Blackwell and Rubin chips, Huang said during the call. "All of our customers are quite excited about Vera."
Supply Constraints and Expansion Efforts
But Huang also conceded that "my sense is that we'll be supply-constrained through the entire life of Vera Rubin," referring to a technology platform that combines both chips and will launch later this year.
Nvidia is spending heavily to ensure it does not hit supply-chain snags during a global memory chip crunch. Nvidia said on Wednesday that its supply rose to $119 billion in the fiscal first quarter, up from $95.2 billion the previous quarter.
Financial Performance Highlights
Nvidia reported first-quarter revenue of $81.62 billion, beating analysts' average estimate of $78.86 billion, according to data compiled by LSEG.
Data center revenue in the quarter came in at $75.2 billion, compared with the average analyst estimate of $72.8 billion.
On an adjusted basis, the firm earned $1.87 per share, compared with market estimates of $1.76.
Cloud Computing Agreements and R&D
Nvidia also disclosed $30 billion worth of cloud computing agreements, up sequentially from $27 billion, which it said were to help its research and development efforts. Seaport analyst Jay Goldberg said in a research note last year that such commitment likely represents “backstops” in which Nvidia agrees to pay cloud computing companies that buy its hardware for excess capacity from those companies running Nvidia systems.
(Reporting by Zaheer Kachwala and Anhata Rooprai in Bengaluru and Stephen Nellis and Max A. Cherney in San Francisco; Editing by Shinjini Ganguli and Matthew Lewis)
