Over the past year, Nvidia has witnessed an extraordinary surge in revenue due to skyrocketing demand for chipsThis tech titan, valued at over a trillion dollars, seems to have hit a rough patch after an era of remarkable growthThe company recently revealed its financial performance for the third quarter of fiscal 2025, marking the end of a streak of six consecutive quarters of triple-digit growthWhile Nvidia reported substantial revenue figures, the figures fell short of previous highs, sparking concerns among investors about the sustainability of its growth trajectory.
Nvidia's revenue for the third quarter reached a staggering $35.1 billion, a 94% increase year-over-year and a 17% jump compared to the previous quarterDespite these impressive numbers, the company’s guidance for the next quarter indicates a slowdown, with expectations of approximately 70% year-over-year growth
In contrast, the previous year's growth rate stood at an astounding 265%, raising eyebrows about the company's future performance.
As the world continues to accelerate toward artificial intelligence and machine learning, Nvidia’s data center business remains its primary revenue driver, significantly contributing to its overall salesThe data center revenue alone reached $30.8 billion in the third quarter, skyrocketing by 112% from the previous yearHowever, compared to last quarter’s 154% growth rate, this figure denotes a slowdownA handful of major clients, including industry giants like Microsoft and Amazon, accounted for nearly half of the data center sales, an increase from 45% the previous quarter.
Following the disconcerting news, Nvidia’s stock took a hit, initially falling nearly 5% in after-hours tradingTo reassure investors, CEO Jensen Huang and other executives held a conference call post-report to address concerns
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Huang emphasized two major trends fueling the global demand for Nvidia's chips: the shift from CPU-based programming to GPU-driven machine learning and the rapid growth of new industries within the AI spaceHuang pointed out that as manufacturers of foundational AI models expand their deployment of pre-training and cloud AI inference capabilities, the demand for Nvidia's Hopper chips and expectations surrounding the Blackwell chips are "incredible."
When asked about potential tariffs from the government affecting Nvidia, Huang assured that regardless of any government decisions, the company will adhere to the subsequent regulations, reflecting a readiness to tackle whatever challenges arise.
On the pressing topic of Blackwell architecture chips, Huang clarified that the design flaws plaguing the chips have been resolved, and production is fully underwayThe anticipated demand for this high-performance chip is projected to exceed expectations for several consecutive quarters
Earlier this year, Nvidia announced an accelerated timeline for its AI chip roadmap, moving from a biannual update to an annual iterationThe Blackwell chips are set to become operational in 2024, followed by the launch of Blackwell Ultra in 2025 and the next-generation architecture platform, Rubin, in 2026. However, production and delivery timelines faced delays due to design flaws that emerged during testing.
A recent report from tech media outlet The Information highlighted overheating issues when deploying Blackwell chips in configurations designed to accommodate 72 GPUs, prompting Nvidia to request multiple design changes from its suppliersSuch issues raised customer concerns over the potential delay in utilizing these new systems.
In the third quarter, Nvidia managed to deliver 13,000 GPU samples, including the initial Blackwell DGX engineering machines to OpenAIThe chip has reached nearly all of its major partners, who are incorporating them into their data centers
The demand for Blackwell chips significantly outstrips supply, and Nvidia is strenuously working to increase production capacity, anticipating that sales will surpass initial projections by several billion dollars in the fourth quarter.
Despite these optimistic sales forecasts, the Blackwell chip production is taking a toll on Nvidia's profitabilityThe adjusted gross margin for the third quarter remained at 75%, consistent with the same period last year, but projections estimate a drop to around 73.5% for the upcoming quarterColette Kress, Nvidia’s CFO, indicated that the overall gross margin is expected to dip into the low 70% range during the initial phase of Blackwell production, with hopes of recovering to mid-70% levels as production scales up, potentially by the second half of next year.
Industry analysts remain cautiously optimistic about Nvidia's futureDaniel Ives, a senior analyst at Wedbush, remarked that Blackwell represents the next frontier for Nvidia and the entire AI revolution
He believes that the market has yet to fully grasp the upcoming demand trends over the next 12 to 18 monthsDuring the previous earnings season, substantial spending on cloud data and AI data centers from firms like Microsoft, Amazon, and Google provided a strong signal for the burgeoning corporate AI demand.
Following the AI-fueled hype, Nvidia’s stock has surged over 200% this year, securing its place as the most valuable company globally, with an impressive 240% rise throughout 2023. Nevertheless, Morgan Stanley analysts caution that supply chain constraints could dampen Nvidia's short-term stock expectations.
Despite the recent design flaws surrounding Blackwell chips, industry experts show significant confidence in Nvidia's long-term prospectsDave Mazza, CEO of investment management firm Roundhill Investments, expressed that while challenges exist, Nvidia's strong track record of overcoming technological hurdles will cushion any impact on long-term growth trajectories
The demand for Nvidia GPUs in the AI and data center market remains robust.
Nvidia is a major component of Roundhill Investments’ large-cap tech ETF, making up 16.29% of the portfolio, second only to Tesla at 17.83%. Mazza stated that unless unexpected structural issues arise, Nvidia should continue to be a core holding in any tech-centric investment strategyWhile specific trading decisions may hinge on earnings report details, confidence in Nvidia remains high.
The broader implications of Nvidia’s performance extend to the entire tech sector and even the U.Sstock market as a wholeMazza posited that Nvidia's earnings serve as a bellwether for the technology industry, particularly in the AI sectorA strong report coupled with optimistic guidance could reignite investors' excitement for tech stocks, possibly leading to an overall sector rallyConversely, underwhelming performance or conservative guidance could trigger a temporary pullback among high-growth tech stocks.
In a report released last Sunday, Bank of America analysts suggested that Nvidia's third-quarter results could influence the short-term trajectory of the U.S