Nvidia forecasts 70% sales growth next year as it remains bullish on AI spending boom

Nvidia projects a 70% surge in revenue for its upcoming fiscal year, highlighting the persistent demand for AI computing solutions and acknowledging potential shortages of memory components could hinder growth. Shares of the chip maker climbed nearly 5% in after-hours trading following an initial dip of more than 1%. CEO Jensen Huang declared AI has transitioned from novelty to a practical and lucrative enterprise, with computation driving Nvidia's revenue growth.

The forecast is anticipated to quell investor concerns about the longevity of the AI spending boom, as demonstrated by the company's expectations of surpassing Wall Street estimates and pointing to strong demand from major tech firms, as well as AI research and development institutions. The company unveiled a three-year growth strategy, including the rollout of their next-generation Vera Rubin processors and increased sales to AI labs such as OpenAI.

Nvidia's 70% revenue growth forecast for the next fiscal year is unprecedented, as the company rarely releases such projections. Analysts' average estimate for revenue growth during the same period was 44%. The broadening demand extends beyond AI hyperscalers to include enterprises, sovereign buyers, and industrial customers. Nvidia's data center revenue more than doubled to $89 billion in the most recent quarter, surpassing analysts' expectations of $85.08 billion.

The company anticipates AI labs to contribute approximately a quarter of its total revenue next year, underscoring a diversified customer base. Furthermore, Nvidia will collaborate with Amazon's cloud computing segment to deploy 2 million Nvidia GPUs across Amazon's infrastructure in 2027 and 2028. However, supply constraints, soaring memory prices, and higher component costs may compress margins, with the finance chief projecting margins to bottom at around 71% to 72% in the fourth quarter, down from 74% in the third quarter.

The company's fourth-quarter revenue is forecasted at $108 billion, with a potential variation of plus or minus 2%, compared to the average analyst estimate of $104.19 billion. Regarding China, Nvidia's China business has been a subject of uncertainty, as the US cleared roughly 10 Chinese firms to purchase Nvidia's most powerful AI chip, the H200, despite deliveries facing delays.

While the company did not include China data center revenue in its forecast, Nvidia began pitching the new Vera CPU to Chinese clients in June, claiming delivery by August.