Nvidia's earnings thrive as demand for AI chips remains strong, despite DeekSeek threat
CEO Jensen Huang assures investors that AI's future is bright, even as DeepSeek’s R1 disrupts the market.
For a few days in January, it seemed like Nvidia's doomsday had arrived. The R1 generative artificial intelligence (GenAI) model from Chinese company DeepSeek, which it claimed was trained with a fraction of the processing power required for models from American companies like OpenAI and Google, shocked the industry. Nvidia’s stock plummeted, losing an astounding $600 billion in market value in a single day (though it still maintained a market value of more than $3 trillion), as concerns grew that demand for the company’s AI chips might evaporate.
While the stock has not fully recovered from that plunge, the company’s quarterly report, published on Wednesday, could help significantly. Revenue (up 78% to $39.3 billion) and net income (up 80% to $22.09 billion) were both strong, though these figures do not fully reflect the potential impact of DeepSeek's model, which was launched just days before the quarter’s end.
What was more interesting was the company’s revenue forecast for the current quarter. Nvidia expects revenue between $42.14 billion and $43.86 billion, marking an increase of 61.8% to 68.4%. While this represents a significant slowdown in growth compared to the same quarter last year, when Nvidia’s revenue surged 262% to $26.04 billion, it is still above analysts' expectations. Of course, when a company’s revenue reaches Nvidia’s scale in such a short period, maintaining similar growth rates becomes increasingly difficult, if not impossible.
In absolute terms, Nvidia’s revenue grew by $18.85 billion in the quarter ending in April 2024. For the current quarter, the company expects revenue growth to range between $16.1 billion and $17.82 billion. This indicates that demand for Nvidia’s chips remains strong and is still growing at a significant rate, even though the relative growth rate has slowed.
The continued demand trend was also reflected in the comments of Nvidia founder and CEO Jensen Huang. According to him, deep changes in the software industry have led to consistently high demand for AI processors. “We know fundamentally software has changed from hand-coding that runs on CPUs to machine learning and AI-based software that runs on GPUs and accelerated computing systems. And so, we have a fairly good sense that this is the future of software,” he said during an analyst call following the report's release. “Another way to think about that is we've really only tapped consumer AI and search and some amount of consumer generative AI, advertising, recommenders, kind of the early days of software. The next wave is coming, agentic AI for enterprise, physical AI for robotics, and sovereign AI as different regions build out their AI for their own ecosystems. And so, each one of these are barely off the ground, and we can see them. We can see them because, obviously, we're in the center of much of this development and we can see great activity happening in all these different places and these will happen.”
Huang also addressed the R1 model, indicating that he is not worried about a potential drop in the costs of training models, even given the breakthroughs it represents. He explained that models like R1, OpenAI’s O-series, or xAI’s Grok 3 will generate a surge in demand for computing power in the execution phase. "Reasoning models can consume 100x more compute. Future reasoning models can consume much more compute. DeepSeek-R1 has ignited global enthusiasm. It's an excellent innovation. But even more importantly, it has open-sourced a world-class reasoning AI model,” said Huang.
In addition to the strong report and positive outlook, Nvidia has other reasons to remain optimistic in the short term. The company’s largest customers—Amazon, Microsoft, and Google—continue to invest hundreds of billions of dollars in AI infrastructure this year. When it comes to chips, there are almost no worthy alternatives to Nvidia on the market. Market consensus holds that even after the DeepSeek moment, demand for computing power is unlikely to stop, and Nvidia will continue to be the main supplier to meet this demand.
However, the company also faces many challenges in the coming quarters, some of which are not yet predictable. This week, it was reported that the Trump administration plans to tighten chip export restrictions imposed by the Biden administration, including targeting the chips Nvidia developed for China to comply with Biden's restrictions. Huang, who has an interest in lifting these restrictions, expressed difficulty in justifying them, especially in light of DeepSeek’s success. "It’s hard to say whether export restrictions are effective," he said in an interview with CNBC. "Our revenue from China before the restrictions was twice as high as it is now. And competition from China is fierce, with companies like Huawei continuing to innovate. Ultimately, software finds a way. When you develop software for a supercomputer, a PC, a phone, or a gaming console, you make sure that the software works on the system it’s designed for, and you make great software."
At the same time, Trump has threatened to impose tariffs on chips, including those made by Nvidia in Taiwan by TSMC. Nvidia CFO Colette Kress told analysts that the company is closely monitoring the situation. "Tariff at this point, it's a little bit of an unknown. It's an unknown until we understand further what the U.S. government's plan is, both its timing, its where, and how much. So, at this time, we are waiting, but again, we would, of course, always follow export controls and/or tariffs in that manner."
But the biggest threat to Nvidia lies in the surprises that the future holds. The rapid changes in the market over the past three years have made it nearly impossible to predict what will happen with any degree of certainty beyond a few months or weeks. The January dip shook the industry and caused Nvidia’s stock to drop dramatically. Given the volatility, it’s anyone’s guess what the next big shift in the industry will be or where it will come from.
