By Arsheeya Bajwa and Stephen Nellis
(Reuters) – Nvidia CEO Jensen Huang shrugged off concerns about an AI bubble on Wednesday as the company surprised Wall Street with an acceleration in growth after several quarters of slowing sales.
The chipmaker’s strong third-quarter results and fourth-quarter guidance have eased, at least temporarily, investors’ nerves over fears of an AI boom outpacing fundamentals. Global markets looked to chip designers to determine whether investing billions of dollars in expanding AI infrastructure had led to an AI bubble.
“There’s been a lot of talk about an AI bubble. From our perspective, we’re seeing something very different,” CEO Jensen Huang said on a call with analysts, where he touted how much cloud companies want Nvidia chips.
“We’re in every cloud. The reason developers love us is because we’re literally everywhere,” he said. “We’re everywhere, from cloud to on-premises to robotics to edge devices to PCs and more. One architecture. Things work. It’s amazing.”
He reiterated a forecast from last month that the company would have booked $500 billion in bookings for its advanced chips through 2026.
AI Market shares jumped 5% in extended trading, helping the company add $220 billion in market value. Before the results, doubts had caused Nvidia shares to fall nearly 8% in November, after rising 1,200% over the past three years.
The market as a whole is down almost 3% this month.
After the results, S&P 500 futures rose 1%, showing traders expect the U.S. stock market to open sharply higher on Thursday.
The world’s most valuable company said it expected fourth-quarter revenue of $65 billion, plus or minus 2 percent, compared with analysts’ average estimate of $61.66 billion, according to data compiled by LSEG. It projects an adjusted gross margin of 75% for the period, plus or minus 50 basis points, and Nvidia CFO Colette Kress said the company expects to maintain gross margins around 70% in fiscal 2027.
Nvidia’s third-quarter sales rose 62%, their first acceleration in seven quarters. Sales in the data center segment, which accounts for the majority of Nvidia’s revenue, reached $51.2 billion in the quarter ended October 26. Analysts expected revenue of $48.62 billion.
Nvidia’s fortunes have driven up shares of rival AMD, as well as those of tech giants including Alphabet and Microsoft.
RESULTS MAY NOT BE ENOUGH TO EASE BUBBLE FEARS
Some analysts, however, say the earnings report may not be enough to allay AI bubble fears.
“The fear that growth in AI infrastructure spending is not sustainable is unlikely to subside,” said Ruben Roy, an analyst at Stifel.
In the third quarter, Nvidia sharply increased the amount it spent renting its own chips to its cloud customers who otherwise wouldn’t be able to rent them. These contracts totaled $26 billion, more than double from the previous quarter.
Cloud giants including Microsoft and Amazon are investing billions in AI data centers, and some investors have claimed that these companies are artificially boosting profits by extending the depreciable lifespan of AI computing equipment, such as Nvidia’s chips.
Nvidia’s business became increasingly concentrated during its fiscal third quarter, with four customers accounting for 61% of sales, up from 56% in the second quarter.
The company has also increased its bets on AI companies, investing billions of dollars in companies that are often among its largest clients, raising concerns about a circular AI economy. In September, it decided to invest up to $100 billion in OpenAI and supply it with data center chips.
“Even though the results and outlook were better than consensus expectations, we believe investors will remain concerned about the sustainability of its customers’ increased capital spending and circular financing in the AI space,” said Kinngai Chan, an analyst at Summit Insights.
POSSIBLE OBSTACLES TO GROWTH
Largely excluded from China due to U.S. export restrictions, the chipmaker is tapping the Middle East for a new growth avenue.
The US Commerce Department announced on Wednesday that it had authorized the export of the equivalent of 35,000 Nvidia Blackwell chips to two companies in Saudi Arabia and the United Arab Emirates. According to market estimates, their value would be well over $1 billion.
But factors beyond Nvidia’s control could hamper its growth.
“As demand for GPUs continues to be massive, investors are increasingly wondering whether hyperscalers can actually use this capacity quickly enough,” said Jacob Bourne, an analyst at eMarketer. “The question is whether physical bottlenecks in electricity, land and grid access will limit how quickly this demand translates into revenue growth through 2026 and beyond.”
Asked by an analyst on a call what the biggest constraint to Nvidia’s growth was, Huang responded at length, emphasizing the scale, newness and complexity of the AI sector. He did not cite a reason, but said this transformation required careful planning across supply chains, infrastructure and financing.
(Reporting by Arsea Bajwa Mal in Bengaruru and Stephen Nellis in San Francisco; editing by Sayantani Ghosh, Matthew Lewis and Chris Reuse)
