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NVIDIA announced its fiscal year earnings for January 2024 on February 21st. The annual revenue reached $60.9 billion, marking a 126% increase from the previous year, with operating profit soaring to $33 billion, an increase by 7.8 times.

For the fourth quarter (November to January), the revenue was $22.1 billion, a 265% increase year-over-year, exceeding the company’s forecast of $20 billion. The operating profit for the quarter reached $13.6 billion, a tenfold increase, with an operating margin surpassing 61%.

In response to the strong performance, the after-hours stock price surged by over 7%. The sales forecast for the February to April period is set at $24 billion (±2%), with a confident outlook stating, “We will continue to grow in 2024, 2025, and beyond.”

Half of data center sales are for the cloud

Demand for data centers continues to drive NVIDIA’s performance.

Data center revenue has been increasing quarterly, with the third quarter reaching $14.51 billion, a 279% increase. The previous quarter saw revenue of $10.32 billion, a 171% increase, and the first quarter reported $4.28 billion, a 14% increase.

In the latest quarter, more than half of the data center revenue came from major cloud providers.

Jensen Huang, the founder and CEO of NVIDIA, stated, “Accelerated computing and generative AI are at a turning point. There is a surge in demand worldwide across corporations, industries, and nations.” He claims that the data center installation base amounts to approximately $1 trillion and predicts the emergence of data centers worth $2 trillion that will power global software over the next four to five years.

Will NVIDIA Continue Its Dominance?

The demand for data centers is expected to grow further. With the expansion of generative AI, the demand for high-performance semiconductors is surging, and NVIDIA is extending its lead in securing orders.

On March 19th, Hitachi, Ltd. announced a collaboration with NVIDIA in developing AI services. The partnership aims to digitize railways and infrastructure facilities in virtual spaces to improve maintenance efficiency.

Moreover, NVIDIA and Chinese EV companies have announced an expansion of their partnership to enhance autonomous driving technology.

While NVIDIA’s dominance seems likely to continue for the time being, we will keep a close eye on the company’s developments.

As introduced in the previous article, Sakura Internet plans to invest up to 100 billion yen over the next five years to enhance its capabilities.

Sakura Internet’s President Tanaka mentioned in the context of future management strategy, “Next term, we plan to hire up to 200 new personnel, which is double the number of this term. We aim to improve the development and operational capabilities of our data centers that store servers.”

The proactive stance is backed by the sustained expansion in demand for data centers. With the broadening base of the cloud, along with the emergence of new technologies requiring substantial computational power such as generative AI, there is a global shortage of data centers capable of performing vast computations efficiently.

Moreover, in November last year, albeit conditionally, it was selected as the provider for the foundational part of the government cloud used jointly by the government and local authorities, with the condition being “to meet all technical requirements by the end of FY2025” (Minister Kono for Digital Affairs). Following the four American entities—AWS Japan, Google Cloud Japan, Microsoft Japan, and Oracle Japan—this marks the first entry by a Japanese company.

The stock market responded to the announcement of the first government cloud certification for a Japanese company, with the stock price surging immediately after the announcement. The year-on-year price increase for 2023 placed it at the top among the listed companies on the Tokyo Stock Exchange Prime.

Capitalizing on its Japan-based operations

Unlike overseas IT giants, Sakura Internet rents out infrastructure necessary for cloud services, such as virtual servers, through its data centers, all of which are located domestically. All developers work in Japan, providing the flexibility to tailor cloud functionalities to customer needs with ease.

Among the ministries and local governments that have taken the lead in adopting the government cloud, over 90% of the 175 issued accounts have chosen AWS. However, there appears to be a significant number of local authorities wishing to use Sakura Internet’s “Hinomaru Cloud” for the protection of personal information, though the expected increase in revenue is projected to be only a few billion yen annually.

What’s important are the indirect benefits such as increased visibility and trust gained from entering the government cloud market. The company plans to leverage this to explore new business opportunities with manufacturing giants wanting to streamline operations using generative AI and major travel companies working on translation services for international visitors to Japan.

Additionally, last year, it was decided to invest approximately 13 billion yen over three years in the development of a cloud service for generative AI, “High Power”, at its data center in Hokkaido. The Ishikari Data Center is equipped with servers featuring the high-performance NVIDIA H100 Tensor Core GPU by Nvidia, aimed at uses centered around generative AI such as large language models, with the “High Power PHY” service commencing in January this year.

President Tanaka also mentioned as a medium to long-term outlook, “If we cannot provide ten times the current capacity in 3-5 years, we will not be able to meet the domestic demand.” He is seeking stable supply from Nvidia in collaboration with the Ministry of Economy, Trade and Industry to support the development of the Hinomaru Cloud.

If the data center enhancement continues in line with the GPU procurement outlook, the investment could simply amount to 100 billion yen. The generative AI-related business has a high-profit margin, and the profits generated here will be used as capital for additional investments, with the shortfall being considered for bank loans and other financing options.

Looking forward to further growth

While American IT giants are also intensifying their efforts in Japan, Sakura Internet is expected to continue its aggressive stance. Leveraging its local presence in Japan, we look forward to its further growth.