Nvidia's Blistering Growth Amidst Market Complexities
In the high-stakes world of technology and finance, Nvidia has once again taken center stage. After the bell, the company reported earnings that not only surpassed Wall Street’s expectations but also furnished stronger-than-anticipated guidance for the current quarter. However, in a somewhat paradoxical turn, Nvidia shares dipped 8% in extended trading. The chipmaker’s revenue growth has been nothing short of meteoric. During the quarter, it soared by 122% on an annual basis, following three consecutive periods of year-over-year growth exceeding 200%. This growth spurt is primarily fueled by the insatiable demand for its data center chips. The data center business, which houses its AI processors, witnessed a staggering 154% climb from the previous year, amassing $26.3 billion and constituting 88% of total sales. This figure even outstripped StreetAccount’s expectations of $25.24 billion. It’s worth noting that not all of this revenue stream is from AI chips alone; $3.7 billion came from the company’s networking products.
Nvidia has firmly established itself as the linchpin of the ongoing artificial intelligence boom. Its shares have skyrocketed more than 150% this year, hot on the heels of a near 240% surge in 2023. With a market cap that recently eclipsed $3 trillion, it briefly held the crown as the world’s most valuable public company, though currently it stands second to Apple.
A significant portion of its business revolves around a select group of cloud service providers and consumer internet companies like Microsoft, Alphabet, Meta, and Tesla. The likes of Nvidia’s H100 and H200 chips are ubiquitous in the vast majority of generative AI applications, most notably OpenAI’s ChatGPT. Many customers are eagerly awaiting the arrival of its next-generation AI chip, Blackwell. In a positive development, Nvidia shipped samples of the Blackwell chips during the quarter and made a strategic tweak to enhance manufacturing efficiency. The company anticipates shipping several billion dollars in Blackwell revenue in the fourth quarter, as disclosed by CFO Colette Kress. CEO Jensen Huang further elaborated that the production process was on track, with the mask change completed and shipments set to commence.
Interestingly, while anticipation builds for Blackwell, the current-generation Hopper chip is still going strong. Nvidia projects that Hopper will see increased total shipments over the next two quarters rather than a decline. Huang emphasized in the press release that “Hopper demand remains strong, and the anticipation for Blackwell is incredible,” highlighting the coexistence of demand for both generations, albeit with Hopper enjoying better supply availability and Blackwell facing shortages. On the financial front, Nvidia’s gross margin saw a slight dip in the quarter, slipping to 75.1% from 78.4% in the prior period. Nevertheless, it remains an improvement compared to 70.1% a year ago. For the full year, the company anticipates gross margins to hover in the “mid-70% range,” whereas analysts, according to StreetAccount, were forecasting a full-year margin of 76.4%.
Beyond the data center realm, Nvidia’s other business segments are also showing signs of life. The gaming business, which was once the company’s bread and butter before the data center boom, registered a 16% growth from the previous year, reaching $2.9 billion and exceeding StreetAccount’s estimate of $2.7 billion. This uptick is partly attributable to increased PC gaming card shipments and contributions from “game console SOCs,” as Nvidia supplies chips for Nintendo’s consoles.
The company’s professional visualization business, catering to high-end graphic designers, witnessed a 20% rise, reporting $454 million in revenue. Additionally, its automotive and robotics revenue came in at $346 million, in line with StreetAccount expectations of $344.7 million. In a bid to further bolster shareholder value, Nvidia also greenlit $50 billion in additional share buybacks.
As Nvidia navigates this complex landscape of surging demand, technological transitions, and market expectations, the tech and investment communities will be watching intently to see if it can sustain its growth trajectory and address the challenges that lie ahead. Whether it can optimize production to meet the Blackwell demand, stabilize gross margins, and continue to innovate across all its business segments will determine its future standing in the global market.