Nvidia tells skeptical investors that AI is ready to go mainstream

This article has been updated.

Nvidia Corp., facing more investor skepticism, used its latest quarterly report to tout progress in diversifying the company, which aims to rely less on the giant data center operators that have fueled its runaway growth.

Though spending has continued to surge from large data center clients — a group known as hyperscalers — Nvidia predicted that a vast array of other businesses and governments would soon become a bigger source of revenue. They’re poised to snap up Nvidia’s chips and other computing products to support their own artificial intelligence ambitions.

Down the road, so-called physical AI will bring a colossal new opportunity in the form of robots and automated vehicles, Chief Executive Officer Jensen Huang said on a conference call with analysts. “We’ve got it all covered,” he said. 

But investors have become harder to impress. Even after the company beat analysts’ estimates with its results and forecast, the shares slipped about 1% in late trading Wednesday. Shareholders weren’t swayed by an expansion of investor rewards, including a massive increase to the company’s dividend.

Sales in the three months ending in July will be about $91 billion, the company said in its quarterly report. That topped the average estimate of $87 billion, though analysts’ projections ranged as high as $96 billion, according to data compiled by Bloomberg.

At the same time, the company is facing the first major challenges to its dominance in AI computing, with a variety of chipmakers trying to carve out a piece of the business. And major buyers of Nvidia’s technology are developing their own in-house components.

Nvidia shares had gained 20% this year heading into the report. That increase outpaced the S&P 500 but trailed most major chip peers.

Nvidia is the top seller of AI accelerators, chips used to develop artificial intelligence models. But it faces growing competition from across Silicon Valley. Advanced Micro Devices Inc. has rival processors, and Broadcom Inc. and Alphabet Inc.’s Google are attacking the market with their own technology.

Nvidia remains in an enviable position, with Wall Street predicting that the company’s revenue will account for more than a third of the entire semiconductor sector’s sales this year.

“The build-out of AI factories — the largest infrastructure expansion in human history — is accelerating at extraordinary speed,” Huang said in a statement. 

Data center spending, which is the main source of Nvidia’s revenue, hasn’t shown signs of letting up. Hyperscalers plan to shell out a combined total of roughly $725 billion on AI this year. And based on Nvidia’s latest results, revenue from those companies continues to outpace other sources. 

Read More: Alphabet, Amazon Outpace Meta in AI During Earnings Bonanza

That hasn’t just buoyed sales of accelerators. General-purpose CPUs, or central processing units, also are in greater demand. That’s lifted results for Intel Corp. and AMD. Chip upstarts are getting a boost as well: Cerebras Systems Inc., which offers a novel product based on large pieces of silicon, had the year’s biggest initial public offering last week. 

Read More: AI Chipmaker Cerebras Climbs 68% After Year’s Biggest IPO

Santa Clara, California-based Nvidia doesn’t just sell accelerators. It offers a range of chips, as well as networking, software, AI models and even complete computer systems. That helps make its reach and capabilities unassailable, Nvidia management has argued. The company has said it has more orders than it can fill and is investing to add supply to meet that demand.

In the three months ended April 26, Nvidia’s sales gained 85% to $81.6 billion. Analysts had estimated $79.2 billion on average. Profit, minus certain items, climbed to $1.87 a share. That beat a projection of $1.77.

Adjusted gross margin, the percentage of revenue remaining after deducting costs of production, was 75%.

Nvidia boosted its quarterly dividend to 25 cents a share from a penny. And the chipmaker announced $80 billion in stock repurchases.  

Nvidia’s all-important data center unit generated revenue of $75.2 billion, compared with an estimate of $73.5 billion. Networking, part of the data center division, delivered $14.8 billion in sales, versus an estimate of $12.7 billion. 

The company is on course to record revenue of more than $370 billion this year, according to estimates. By that measure, it will be roughly 22 times the size it was in fiscal 2021. Nvidia easily chalks up more sales in a quarter than its next three largest rivals combined.  

Read More: Nvidia Sees Sales Goal Topping $1 Trillion With New Markets

Huang has just returned from a trip with President Donald Trump to China, the largest market for semiconductors overall. US export rules have stymied Nvidia’s growth in that country by restricting sales of AI accelerators on national security grounds. 

The Trump administration has begun allowing older Nvidia products to be sold to Chinese customers. But Beijing, trying to cultivate local suppliers, has resisted that initiative. That’s left Nvidia mostly locked out of a market that it has said could generate $50 billion a year. 

The company said Wednesday that it’s still not getting any data center revenue from China.

Meanwhile, Nvidia continues to branch out into new areas. It’s beginning to sell general-purpose processors and is offering chips tailored to the inference stage of artificial intelligence. That’s the point where models are already trained and beginning to handle real-world inputs.

The company said it expects to get $20 billion in CPU revenue this year, which would make it the world’s largest supplier. 

This story was originally featured on Fortune.com