Shares of the computer graphics chipmaker Nvidia Corp. rose more than 8% in after-hours trading today after the company reported higher-than-expected fourth-quarter revenue, earnings and net income.

Nvidia beat Wall Street’s targets despite seeing a significant drop in all three categories year-over-year. The company reported earnings before certain costs such as stock compensation of 88 cents per share, beating analysts’ consensus estimate of 81 cents by a comfortable margin.

Nvidia’s revenue for the period fell 21% from a year ago, to $6.05 billion, but that was just ahead of the $6 billion forecast. Net income for the quarter fell 53%, to $1.4 billion.

Although the semiconductor industry has taken a beating in recent months, with fellow chipmakers like Intel Corp. and Advanced Micro Devices Inc. both struggling, investors have expressed more confidence in Nvidia’s ability to weather the storm. The economic slowdown has seen sales of personal computers and other devices grind to a halt, but that’s not the case with Nvidia’s data center business, which includes graphics processing chips for artificial intelligence workloads.

Indeed, with all the buzz around AI that has been generated by software such as ChatGPT lately, Nvidia appears to be benefiting. Its graphics processing units are ideal for training and running machine learning software, and that’s reflected in its data center revenue, which rose 11% from a year ago to $3.62 billion. Nvidia said the growth was primarily driven by U.S.-based cloud service providers buying more products.

Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that Nvidia’s strong showing is mainly because, when it comes to AI training, its GPUs are really the only game in town. “If you train on Nvidia’s hardware, you likely run your inference on it too, even though there are more alternatives to choose from in this area,” he said.

In a call with analysts, Nvidia Chief Executive Jensen Huang (pictured) said AI is one of the forces pushing cloud customers to spend more on its chips. “AI is at an inflection point, setting up for broad adoption reaching into every industry,” he said. “From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI. Generative AI’s versatility and capability has triggered a sense of urgency at enterprises around the world to develop and deploy AI strategies.”

Analyst Rob Enderle said Nvidia is clearly benefiting from Huang’s early vision of AI and autonomous cars, which has since expanded into multiple different areas. At a time when technologies like generative AI are creating a very disruptive wave, Nvidia is riding that wave rather than getting buried by it, he explained.

“Clear credit goes to Jensen Huang for anticipating the needs decades in advance and then successfully positioning the firm to benefit from them,” Enderle said. “We are still very early on these waves, suggesting even more significant gains for Nvidia will be coming as these technologies advance more aggressively into the market.”

The growth in data center and AI revenue helped Nvidia to offset a steep decline in its gaming business, which is focused on graphics cards for personal computers and game consoles. The gaming business had benefited from elevated sales during the COVID-19 pandemic, only to slow with the struggling economy. Nvidia reported gaming revenue plunged 46% from a year ago, to $1.83 billion, which the company blamed on selling fewer chips to partners that currently have too much inventory on their hands. It also shipped fewer GPUs for game consoles during the quarter.

“Gaming needs a few more quarters to get through inventory rebalancing from the old cards to new,” Moorhead said. “It will also need some more AAA titles to drive demand for the Q3 sell-in and Q4 sell-out period.”

The results from Nvidia’s other, much smaller businesses were mixed. On the one hand, automotive revenue surged 135% from a year ago, to $294 million. However, revenue from the professional visualization business dropped 65%, to just $226 million.

Looking ahead to the first quarter, Nvidia is forecasting revenue of about $6.5 billion, higher than Wall Street’s forecast of $6.33 billion.

Nvidia’s stock was already up 45% in the year to date before today’s gains.

Photo: Nvidia/Flickr