Nvidia Stock Breaks Unwanted Record. How It Finally Sold the Growth Story.

Nvidia CEO Jensen Huang has built the company into the dominant provider of artificial-intelligence chips. (AFP via Getty Images)

Key Points

• Nvidia projected 70% sales growth for its next fiscal year, beating Wall Street expectations of less than 50%.
• Nvidia shares rose following the company’s quarterly earnings report.
• Nvidia has reportedly agreed to buy AI development platform Hugging Face for $12.9 billion, according to The Information.

It’s fifth time lucky for Nvidia . After a run of four quarterly earnings reports in which the stock slumped the following trading session, the chip maker finally appears to have hit on a winner by overturning assumptions about how fast it can grow.

Nvidia’s main problem has been skepticism that a company worth more than $5 trillion has room to run. CEO Jensen Huang said it could double sales if it weren’t for supply constraints.

If that wasn’t enough, Nvidia also addressed concerns about its biggest clients turning to custom chips to replace its hardware. An expanded partnership with Amazon.com will see the e-commerce giant deploy an additional two million Nvidia processors.

That won the market over. Nvidia shares were up 7.3% at $224.91 in Thursday’s premarket.

It wasn’t a flawless report. Skeptics will focus on a gross margin set to decline due to soaring memory prices and the use of Nvidia’s balance sheet to guarantee customers’ debt, alongside extending payment terms for some customers. But Barron’s has argued that’s a smart tactic, guaranteeing long-term demand.

“We know some will call this circular financing. We see it differently,” Nvidia CFO Colette Kress said. “The equity returns on our invested capital will be excellent.”

And Nvidia doesn’t look to be resting on its laurels. The company has agreed to buy Hugging Face—an AI development platform—for $12.9 billion, technology-focused news outlet The Information reported Wednesday, citing a person familiar with the matter.

Nvidia didn’t immediately respond to a request for comment on the report early Thursday.

Write to Adam Clark at adam.clark@barrons.com

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