Nvidia issues strong forecast on AI boom and reveals plan for stock split

US chip maker expects revenue of $28bn in current quarter, compared to analysts' forecast of $26.6bn

Industry analysts consider the stock split to be a move for even more investors, after the company’s market value almost tripled over the past year. Getty Images / AFP

Chip maker Nvidia predicted a bullish sales outlook for the second quarter and announced a 10-for-one forward stock split, impressing investors and demonstrating that investment in artificial intelligence computing continues to be robust.

Industry analysts consider the stock split to be a move to attract even more investors, after the company’s market value almost tripled over the past year due to increasing enthusiasm for AI.

The California-based company said each holder of common stock, as of market close on June 6, will receive nine additional shares of common stock.

Shares will start trading on a split-adjusted basis when the market opens on June 10.

“Shareholder support will be crucial,” Thomas Monteiro, senior analyst at Investing.com, told The National.

"While the splits should create further momentum for the stock itself in the short run, they are not nearly as important as the improved guidance on the fundamental front."

Why the stock split is significant for Nvidia

Splitting stocks is a tactic companies use to make it less expensive to buy individual shares. It does not alter a company's financial fundamentals.

This can attract retail investors who make small trades.

In 2022, technology companies Alphabet, Amazon and Tesla also announced splits to reduce the price of their shares.

Nvidia's stock is one of the best performers in the S&P 500 index, which has jumped nearly 12 per cent since the start of the year.

Its shares closed 0.46 per cent down at $949.50 on Wednesday, giving the company a market value of $2.34 trillion.

With a 10-for-one split at that price, one share of Nvidia will cost $94.95, but an investor would need to buy 10 shares to maintain the same ownership stake in the company.

After the earnings announcement and disclosure of new plans, the stock jumped more than 6 per cent in after-market hours to trade at almost $1,007.

The company's shares have surged more than 97 per cent since the start of the year.

Nvidia’s improved second-quarter outlook

Nvidia said it expected revenue of $28 billion, plus or minus 2 per cent, in this quarter, compared to the $26.6 billion forecast by LSEG analysts.

In the first quarter, which ended on April 28, Nvidia reported revenue of $26.04 billion, up 18 per cent from the previous quarter and up 262 per cent on an annual basis. It surpassed expectations of $24.65 billion.

Net income during the period surged 628 per cent yearly to almost $14.9 billion. Earnings for each share stood at $5.98 compared to $0.82 in the period for 2023.

It was the company’s fourth consecutive quarter with more than $10 billion in revenue.

What are Nvidia's growth drivers?

Nvidia’s strong performance in the last quarter was primarily driven by its data centre business that makes chips used to build and run generative AI technology such as ChatGPT.

The division’s first-quarter revenue stood at a record $22.6 billion, up 427 per cent from a year ago.

Nvidia designs and makes AI hardware and software GPUs for various industries. GPUs can process various tasks simultaneously, making them useful for machine learning, video editing and gaming applications.

The company’s gaming unit brought in nearly $2.6 billion, up 18 per cent from the same quarter a year ago, in the February-April period.

Before its AI chips gained momentum, Nvidia primarily focused on gaming graphics cards. Now, some of its graphics cards are used for AI purposes.

Why market analysts are optimistic about Nvidia

Numbers remain “incredibly strong”, leaving no doubt that the company's leadership in the AI revolution remains unchallenged for now, Mr Monteiro said.

“Against a backdrop of increasing competition and projected self-reliance on the chip space for big tech, both profitability and guidance indicate that growing demand in all areas should more than make up for the challenges in the rest of the year,” he said.

The positive outlook solidifies Nvidia’s position as the leading beneficiary of AI investment.

Its AI accelerators, which are chips that assist global companies and data centres in developing AI chatbots, have become highly sought in recent years.

AI will bring “significant productivity gains” to nearly every industry and help companies be more cost and energy efficient while expanding revenue opportunities, said Jensen Huang, founder and chief executive of Nvidia.

“The next Industrial Revolution has begun,” he said.

“Companies and countries are partnering with Nvidia to shift the trillion-dollar traditional data centres to accelerated computing and build a new type of data centre – AI factories – to produce a new commodity: artificial intelligence.”

In the past few quarters, Nvidia sales have jumped as technology companies such as Meta, Amazon, OpenAI and Microsoft bought its GPUs.

“A big highlight this quarter was Meta’s announcement of Lama 3, their latest large-language model, which used [Nvidia’s] 24,000 H100 GPUs,” Colette Kress, Nvidia's chief financial officer, said during an analyst call.