Nvidia and Amazon Web Services, Amazon's profitable cloud arm, share a surprising amount in common. To begin with, their core business arose as a result of a happy accident. For AWS, it realized that it could sell the internal services—storage, compute, and memory—that it had built for itself within the company. For Nvidia, the reality was that the GPU, which was created for gaming purposes, was also well suited to processing AI workloads.
This has ultimately led to some tremendously increased revenues in recent quarters. Nvidia's revenue is growing by triple digits, going from $7.1 billion in the first quarter of 2024 to $22.1 billion in the fourth quarter of 2024. That's a pretty impressive trajectory, even though the vast majority of that growth has been in the company's data center business.
Although Amazon has never seen this kind of intense growth spurt, it has always been a big revenue driver for the e-commerce giant, and both companies have seen early market advantage. However, over the years, Microsoft and Google have joined the market to create the Big Three cloud vendors, and it is expected that other chipmakers will eventually start taking significant market share as well, even as the revenue pie continues to grow over the next year. several years.
Clearly, both companies were in the right place at the right time. As web and mobile applications began to emerge around 2010, the cloud provided on-demand resources. Companies quickly began to see the value of moving workloads or building applications in the cloud, rather than running their own data centers. Likewise, with the takeoff of AI over the past decade, and more recently large language models, there has been an explosion in the use of GPUs to process these workloads.
Over the years, AWS has grown into a very profitable company, currently running at nearly $100 billion, a company that even if separated from Amazon would be a very successful company. But AWS's growth has begun to slow, even as Nvidia has taken off. It's partly the law of large numbers, which will eventually affect Nvidia as well.
The question is whether Nvidia can sustain this growth to become the long-term revenue powerhouse that AWS is to Amazon. If the GPU market starts to tighten, Nvidia has other companies, but as this chart shows, those companies are much smaller revenue generators and growing much slower than the GPU data center business currently.
Image credits: Nvidia
Short-term financial outlook
As the chart above indicates, Nvida's revenue growth has been astronomical in recent quarters. And according to Nvidia and Wall Street analysts, this is set to continue.
In its latest earnings report covering the fourth quarter of its fiscal 2024 (the three months ending January 31, 2024), Nvidia told its investors that it expects revenue of $24 billion in the current quarter (1QFY25). Compared to the first quarter of last year, Nvidia expects to record growth of about 234%.
This is simply not a number we see often in mature public companies. However, given the huge rise in the company's revenues in recent quarters, its growth rate is expected to decline. From a 22% revenue increase from the third quarter to the fourth quarter of its recently concluded fiscal year, Nvidia expects a more modest growth rate of 8.6% from the last quarter of its fiscal 2024 to the first of its fiscal 2025. Certainly, over a year compared to over Year and not just a three-month look back, Nvidia's growth rate remains incredible over the current period. But there are further declines in growth on the horizon.
For example, analysts expect Nvidia to generate revenue of $110.5 billion in its current fiscal year, an increase of just over 81% from last year's results. This is significantly lower than the 126% gain it recorded in the recently ended fiscal year 2024.
To which we ask: So what? Over the next few quarters at least, Nvidia is expected to continue to grow its revenues past the $100 billion annual run rate mark, which is impressive for a company that today saw total revenues in the same period last year of just $7.19 billion.
In short, analysts, and to a more modest extent Nvidia, see huge buckets of growth ahead for the company, even if some of the impressive revenue growth numbers will slow this calendar year. It's unclear what will happen in a slightly longer time frame.
Momentum ahead
It looks like AI could be the gift that keeps on giving for Nvidia for several years to come, even as more competition emerges from AMD, Intel and other chip makers. Like AWS, Nvidia will eventually face stiffer competition, but it controls a large portion of the market right now, and can concede some.
Looking at the issue only at the chip level, and not at the boards or other adjacent areas, IDC shows that Nvidia is firmly in control:
Image credits: IDC
If you look at the board level with these market share numbers from Jon Peddie Research (JPR), a company that tracks the GPU market, while Nvidia still dominates, AMD comes out stronger:
Image credits: John Bede Research
Some of this volatility has to do with when new products are introduced, says C. Robert Dow, an analyst at JPR. “AMD gains percentage points here and there depending on market cycles — when new cards are introduced — and inventory levels, but Nvidia has been in a dominant position for years, and that will continue,” Dow told TechCrunch.
Shane Rao, an IDC analyst who tracks the silicon market, expects dominance to continue, even as trends shift and change. “There are trends and counter-trends, and the markets Nvidia is involved in are big and growing, and the growth will continue, at least for another five years,” Rao said.
Part of the reason for this is that Nvidia sells more than just the chip itself. “They'll sell you boards, systems, software, services and time on one of their supercomputers. So any of these markets are big and growing and Nvidia is tied into all of them,” he said.
But not everyone sees Nvidia as an unstoppable force. You don't always need GPUs, and companies are starting to realize that, says David Linthicum, a longtime cloud consultant and author. “They say they need GPUs. I look at them, do some math in the back of the envelope, and they don't need them. CPUs are perfectly fine,” he said.
As this happens, he believes Nvidia will begin to slow down and competition will loosen its market hold. “I think we'll see Nvidia become a weaker player over the next couple of years. We'll see that because there are a lot of alternatives being built out there.
Other vendors will also benefit as companies expand AI use cases with Nvidia products, Rao says. “What I think you'll see going forward is growing markets that will create tailwinds for Nvidia. But then there will be other companies that will also follow those tailwinds that will benefit from AI in particular.”
It is also possible that some disruptive forces will come into play and it would be a positive outcome to prevent one company from becoming too dominant. “You almost hope that disruption happens because that's how markets and capitalism work best, right? Someone gets an early lead, other suppliers follow, and the market grows. You get established players, who eventually get disrupted,” Rao said. Ultimately there is a better way to do the same thing within their markets or within neighboring markets that intersect with their markets.”
In fact, we're starting to see that happen at Amazon as Microsoft has made gains through its relationship with OpenAI and Amazon has had to play catch-up when it comes to AI. Whatever happens to Nvidia in the long term, it's firmly in the driver's seat right now, making money hand over fist, dominating a growing market and running almost everything its way. But that doesn't mean it will always be this way or that there won't be more competitive pressures in the future.
