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Summary:

Nvidia forecasts strong revenue growth in the fourth quarter, fueled by booming demand for its AI chips from cloud providers. Despite concerns about an AI bubble, Nvidia is betting on the continued expansion of the AI ecosystem and expects substantial growth in its data center segment. While some analysts raise concerns about infrastructure bottlenecks and customer concentration, the overall outlook for AI chip demand remains positive, with significant bookings for Nvidia’s advanced chips. Big Tech companies are investing heavily in AI infrastructure, contributing to the increased demand for Nvidia’s products.

News Article:

Nvidia Forecasts Strong AI Chip Demand, Defying Bubble Concerns

San Francisco, CA – Nvidia, the world’s most valuable company, has predicted a robust fourth quarter, projecting revenue above Wall Street expectations driven by soaring demand for its artificial intelligence (AI) chips. The forecast comes amid growing concerns about an AI bubble, but Nvidia’s leadership remains confident in the continued expansion of the AI ecosystem.

The company expects fourth-quarter sales of $65 billion, plus or minus 2 percent, surpassing analysts’ estimates of $61.66 billion. The results are viewed as a crucial test for the market, assessing whether massive investments in AI infrastructure are justified by underlying fundamentals.

“The AI ecosystem is scaling fast with more new foundation model makers, more AI start-ups across more industries and in more countries. AI is going everywhere, doing everything, all at once,” said Nvidia CEO Jensen Huang in a statement.

Nvidia’s data center segment, which accounts for a majority of its revenue, grew significantly in the last quarter, reaching $51.2 billion.

However, some analysts cautioned that factors beyond Nvidia’s control, such as power and infrastructure limitations, could impede the company’s growth trajectory. “While GPU demand continues to be massive, investors are increasingly focused on whether hyperscalers can actually put this capacity to use fast enough,” said Jacob Bourne, an analyst with eMarketer.

Nvidia’s business is increasingly concentrated, with four customers accounting for 61 percent of sales, and also rents back its own chips from cloud customers who otherwise could not rent them out.

Despite these concerns, analysts and investors generally expect the strong demand for AI chips, which has fueled Nvidia’s success since the rise of ChatGPT, to continue. Huang has stated that the company has $500 billion in bookings for its advanced chips through 2026.

Big Tech companies, major customers of Nvidia, are making substantial investments in AI data centers and are securing the most advanced AI chips. Microsoft, for example, recently reported record capital expenditure, with a significant portion allocated to chips.

Nvidia expects an adjusted gross margin of 75 percent, plus or minus 50 basis points in the fourth quarter, compared with market expectation of 74.5 percent.

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