Nvidia's earnings Wednesday will be a big test for AI bulls

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Nvidia reports second-quarter earnings on Wednesday against a backdrop of elevated expectations driven by a surge of interest in artificial intelligence.

A closer look at estimates shows just how reliant Nvidia has become on AI chips. Gaming, the company's historically core business, isn't thriving in nearly the same way.

Nvidia is expected to post $2.38 billion in gaming revenue during the quarter, which would be a 16% increase from a year earlier. But that's an easy comparison to 2022 numbers, which reflected a deep slump in graphics cards because so many people refreshed their gaming technology during the pandemic. It also includes sales from the chip at the heart of Nintendo's Switch.

By contrast, Nvidia's Datacenter group, which houses AI chips, is looking at a 111% increase in revenue to $8.03 billion, according to estimates. Nvidia's AI chips, including the A100 and H100, have been difficult to purchase in recent months as startups, big companies, governments and cloud providers all place their orders at the same time.

Nvidia faces some challenges that management might address on the call. Supply is an issue, given that manufactures the chips Nvidia designs. Huang had dinner with TSMC chairman Morris Chang during the quarter. China is another big topic. Last year, the U.S. placed export restrictions on Nvidia, which forced the company to make specialized, slower versions of its AI chips for the Chinese market. Additional export restrictions currently being considered by the Biden administration could further limit the products Nvidia sells to Chinese companies.

 

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