Nvidia (NASDAQ: NVDA) announced a blockbuster set of earnings for its 3Q23 period. The darling stock of 2023 recorded a revenue of $18.12 billion, up 206% from a year ago and up 34% from the previous quarter.
Nvidia disclosed their revenue by geographic region which is designated based upon the billing location of the customer. Interestingly, we noticed that $2.7 billion of Nvidia chips were billed to Singapore in 3Q24 while the transactions for 9 months reached $4.5 billion!
With each chip ranging from a couple of hundreds of dollars to more than $15,000, this means that at least 200k chips to possibly a couple millions of chips were sold to Singapore!
While we do not know for sure why, we can make a few intelligent guesses (and no, its not just the BBFAs).
1) Data Centres in Singapore
Data Centres need Nvidia Chips. Currently, Singapore has 100 data centres and 1,195 cloud service providers.
Singapore’s digital infrastructure is formidable. With a robust network supported by 24 submarine cables, Singapore has emerged as a global cloud connectivity leader, hosting major players such as Amazon Web Services, Microsoft Azure, IBM Softlayer, and Google Cloud.
Nvidia’s largest US customers are Amazon, Microsoft, Google, Meta, and Tesla. These companies rely on Nvidia’s GPUs to power their cloud computing services, enabling them to deliver efficient and high-performance solutions to their customers.
2) Autonomous driving
Some believe that Nvidia’s largest client is actually Tesla. Tesla has spent years and countless research funds on trying to achieve full self-driving capability.
Tesla does have a R&D centre with its Gigafactory in Shanghai. Potentially, the purchases could have been done via its Singapore office and chips were then shipped to China. While we know that it is unlikely for Tesla to carry out its most sensitive research in China, there could be a possibility that Tesla is carrying out peripheral research there.
NVIDIA has built a software-defined, end-to-end platform for the transportation industry that enables continuous improvement and deployment through over-the-air updates. Nvidia’s chips helps to accelerate training with the AI computing.
Nvidia’s chips helps make faster progress by optimizing the data load for training and operating these vehicles without compromising safety. The more information that cars can gather and process, the faster and better AI can learn and make decisions.
3) Chinese tech companies in Singapore
Chinese tech companies could be buying Nvidia chips through their Singapore incorporated entities before sending them back to China.
For one, it is known that Tencent had stockpiled enough of Nvidia’s H800 artificial intelligence accelerators to develop its proprietary Hunyuan AI model for at least another couple of generations.
Kuaishou also disclosed that it has stockpiled 10,000 Nvidia A800 chips. 1 Nvidia A800 chip is worth at least US$12k so that would have contributed US$120 million.
It is also known that companies such as Tiktok and Baidu are massive buyers of Nvidia’s chips.
In 3Q24, the US government announced licensing requirements that, with certain exceptions, impact exports to China (including Hong Kong and Macau) and Russia of Nvidia’s A100 and H100 integrated circuits.
Earlier in 2Q24, the US government also placed an additional licensing requirement for a subset of A100 and H100 products destined to certain customers and other regions, including some countries in the Middle East.
Additionally, the US government announced new and updated licensing requirements effective 4Q24 for products exceeding certain performance thresholds, including A100, A800, H100, H800, L4, L40, L40S and RTX 4090.
The US Bureau of Industry and Security (BIS) of the US government has implemented export controls on the basis that the country is either a country of National Security risk, country with Missile technology and US arms embargoed country.
Some countries such as China has been marked with all 3 designations.
The list includes countries such as China and also includes many of the usual countries deemed by US has risky, other named examples include Saudi Arabia, the United Arab Emirates, and Vietnam.
The licensing requirements also apply to the export of products exceeding certain performance thresholds to a party headquartered in, or with an ultimate parent headquartered in certain countries that US have placed an arms embargo on, and this includes China.
Nvidia said that these licensing requirements did not have a meaningful impact on its revenue in 3Q24 as they were announced near the end of the fiscal quarter, however sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed approximately 20-25% of Data Center revenue over the past few quarters.
Therefore, Nvidia expects that sales to these destinations will decline significantly in 4Q24, though they believe the decline will be more than offset by strong growth in other regions.
4) Gamers in Singapore are upgrading
While gaming does not require the high value chips used in other applications such as AI and Cloud computing, a sizeable demand of lower value chips can also contribute to overall revenue from Singapore.
In Singapore, gaming is a popular passion and Singapore is working towards being a gaming hub. Gaming grew at compound annual growth rates of 70% annually between 2017 and 2022, ahead of e-commerce and online services.
In a bid to put its name on the map, Singapore had partnered with the International Olympic Committee to host the inaugural Olympic E-sports Week in June, with more than 60 nations represented in 10 virtual sports titles. Gaming Trade shows are also being held in Singapore.
Singapore’s video game and e-sports revenues are expected to grow at a double digit percentage annually, with estimates of 14% in 2023 and 10% by 2027.
Game studios are also expanding to Singapore. These game studios require Nvidia chips for design and rendering. One noteworthy example is Ubisoft has opened a larger studio at one-north, spread across three storeys, for its 450 game developers and employees, coinciding with its 15th year operating in Singapore.
Closing statement
Of course we do not know for sure the customer and product mix of Nvidia’s products. But we know there these products are used by many of the biggest players in a wide range of industries.
Nvidia’s products are also used to provide various AI, cloud computing and self driving solutions.
While there have been restrictions put in place, there is no doubt that customers who need these chips will find new ways to circumvent the restrictions.
However, we agree that Nvidia may potentially see slower revenue growth in 4Q24 as there is a likelihood that many customers have stocked up way in advance before the restrictions.
So, with growth still on the book for Nvidia, does it make a good investment now? Read Alvin’s analysis on Finbite Insights for more.
