Nvidia just created a new multibillion-dollar business from scratch

By Therese Poletti

Rapidly growing sovereign-AI business expected to earn billions this year, after nothing last year

Just when some investors thought Nvidia Corp. could not have much more upside, the chip giant said it is creating a new multibillion-dollar business, seemingly from scratch.

In an earnings call Wednesday that was already laden with records and superlatives, after the chip maker surpassed Wall Street's estimates, Nvidia (NVDA) Chief Financial Officer Colette Kress told analysts about a new area that is rapidly growing: sovereign AI.

"Data-center revenue continues to diversify as countries around the world invest in sovereign AI," Kress said. "Sovereign AI refers to a nation's capabilities to produce artificial intelligence using its own infrastructure, data, workforce and business networks."

She said that many nations around the world are building up their domestic computing capacity through various models. Some are procuring and operating a sovereign-AI cloud in collaboration with state-owned telecommunication providers or utilities, while others are sponsoring local cloud partners to provide a shared AI computing platform for public- and private-sector use.

One of the examples Kress mentioned included Swisscom Group, majority-owned by the Swiss government, which recently announced that its Italian subsidiary will build Italy's first and most powerful Nvidia-powered supercomputer to develop the first large language model natively trained in the Italian language, she said.

"From nothing the previous year, we believe sovereign-AI revenue can approach the high, single-digit billions this year," Kress said. "The importance of AI has caught the attention of every nation."

It was not clear if sovereign AI will just continue as part its data-center business or if Nvidia plans to eventually separate it into its own segment. Segment reporting, though, typically begins when a division is considered material to the company. Even high, single-digit billion dollars in revenue would be an incremental drop in the bucket for Nvidia, at least for now. The company reported $26 billion in its fiscal first-quarter revenue.

The sovereign-AI business was just another positive in an already stunning quarter for the chip maker, which also decided to increase its dividend and issue a big, 10-for-1 stock split, to make its shares more affordable for both employees and investors.

There was hardly anything in the quarter to complain about, except for increased operating expenses, due to its growing number of employees and on its own data-center buildouts. Wall Street cheered and investors scrambled to buy up more shares, with no slowing of Nvidia's momentum in sight.

-Therese Poletti

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05-23-24 0548ET

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