Finance
Nvidia’s business is growing faster than expected. Investors were still disappointed.
Sometimes your best just isn’t good enough. That’s the lesson Nvidia ( NVDA ) learned Wednesday after the company’s stock price fell 3% despite better-than-expected second-quarter earnings and third-quarter guidance.
It’s not that the company’s growth hasn’t been impressive, either. Turnover increased by 122% year over year to $30 billion, an increase of $13.5 billion. Nvidia’s all-important data center revenue was $26.3 billion, up 154% year over year.
But that wasn’t the kind of hit that investors have quickly grown accustomed to in recent quarters.
In addition to investor sentiment, Wall Street analysts also seem to have understood Nvidia’s growth, after several quarters of big positive surprises.
Nvidia’s revenue beat Wall Street expectations by 4.1% on Wednesday, the narrowest margin since the fourth quarter of fiscal 2023.
While Nvidia’s business has boomed over the past two years, the company’s revenue has exceeded Wall Street forecasts by double-digit percentage points for three straight quarters, including a 22% difference in the second fiscal quarter of 2024 .
And as Wall Street appears to have gotten a better feel for Nvidia’s growth at this point in the AI investment cycle, questions have also been raised about the status of Nvidia’s next-generation Blackwell chip.
Ahead of the company’s earnings announcement, the Information reported that the chip, the successor to Nvidia’s Hopper line, was facing delays that could impact some of the company’s biggest customers, including Microsoft and Google.
In its quarterly commentary says Nvidia CFO Colette Kress explains that the company has made changes to Blackwell to improve production efficiency. CEO Jensen Huang, meanwhile, said the chip is currently being sampled to customers, an important step toward shipping the processor at scale.
Huang said the company expects several billion dollars in Blackwell revenue in the fourth quarter. But the CEO could not determine exactly how much revenue Blackwell would generate, despite questions from analysts.
However, Huang gave Nvidia some other strengths, including noting that demand for Blackwell platforms is well in excess of supply. The CEO also said that Nvidia’s Hopper platform will continue to grow in the second half of the year, explaining that the company expects its data center business to grow “quite significantly” next year.
Huang also said AI inference is driving the company’s data center revenue. Inferencing refers to computers running AI programs that provide users with answers to their questions.
That should allay fears of threats to Nvidia’s long-term growth as companies transition from training AI models to using inference. Huang seems to believe that Nvidia will continue to plow ahead as customers use the chips to train and run their AI models.
Nvidia is still the world leader in AI chips, and it will be some time before rivals AMD (AMD) and Intel (INTC) catch up in hardware and software. And while Nvidia may experience a near-term share price decline, Wall Street is still on board.
In an investor note released following Nvidia’s earnings, BofA’s Vivek Arya raised his price target for the chip designer from $150 per share to $165, writing: “Despite the quarterly numbers, we continue to believe in [Nvidia’s] unique growth opportunities, execution and dominant share of over 80% as generative AI implementations still in the top 1-1.5 [years] of what is at least a three to four year investment cycle.”
Raymond James’ Srini Pajjuri also raised the company’s price target for Nvidia’s stock from $120 to $140, writing in an investor note that “Delays at Blackwell appear better than feared and management predicts a strong upside in FQ4.”
Pajjuri also said demand for Nvidia’s current-generation Hopper chip remains healthy and pointed to expected revenue growth in the fourth quarter, despite Blackwell’s production ramping up at the same time.
Morgan Stanley’s Joseph Moore, who raised his price target on Nvidia from $144 to $150, highlighted Nvidia’s sky-high expectations for the company’s stock prices following its earnings report.
“Expectations become more challenging as outperformance becomes commonplace, but this was still a very strong quarter given the transitional nature of the current environment.”
Whether that’s enough to satisfy investors next quarter remains to be seen.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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