Author: Ian King, Bloomberg; Translated by: Deng Tong, Golden Finance
Nvidia Corp.’s latest earnings on Wednesday fell short of investor expectations, with a disappointing forecast for its much-anticipated Blackwell chip and news of production problems.
The company’s quarterly report — the most anticipated part of the tech sector’s earnings season — met or beat analysts’ expectations on nearly every metric. But Nvidia investors have become accustomed to blowout quarterly results, and the latest numbers didn’t meet expectations.
In addition, Nvidia’s next cash cow, its new Blackwell processor family, has proven more challenging to manufacture than expected. The product is the next generation of the company’s dominant artificial intelligence processors, and concerns about delays caused the stock to fall as much as 8.4% in late trading. As of Wednesday’s close, the stock has more than doubled this year and is up 239% in 2023.
“This is beyond outsized and unsustainable expectations,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note.
The company said third-quarter revenue was about $32.5 billion. While analysts on average had forecast $31.9 billion, the highest estimate was $37.9 billion.
The disappointing outlook could dampen an artificial intelligence boom that has transformed Nvidia into the world’s second-largest company by market value. The chipmaker is a major beneficiary of the race to upgrade data centers to handle AI software, and its sales forecast has become a barometer of that spending spree.
Ahead of the launch, there were concerns about problems with Nvidia’s new Blackwell design. The company acknowledged production issues and said it was making improvements to improve manufacturing yields — the number of functional chips that come out of a factory. At the same time, the company said it expects to bring in “billions of dollars” in revenue from the product in the fourth quarter.
Chief Executive Officer Jensen Huang later said in an interview that supply would be plentiful after manufacturing gains momentum. “We’re going to have a lot of supply and we’re going to be able to ramp up production,” he said.
Nvidia just had a string of events that beat Wall Street expectations, and while analysts continue to raise their estimates, the upside has been falling.
Much of Nvidia’s growth is also coming from a small group of customers. About 40% of Nvidia’s revenue comes from large data center operators — companies such as Alphabet Inc.’s Google and Meta Platforms Inc. — that are investing tens of billions of dollars in AI infrastructure.
While Meta and other companies have increased their capital expenditure budgets this earnings season, there are concerns that the amount of infrastructure being built exceeds current demand. This could lead to a bubble. But Nvidia's Huang insists that this is just the beginning of a new era in technology and the economy.
Expectations are high for Nvidia, which has been the best-performing stock in the S&P 500 this year, outperforming all other semiconductor companies. Nvidia’s market value, at more than $3 trillion, is roughly equal to the next 10 largest chip companies combined.
Nvidia's strong quarters in a row: Chipmaker outperforms analysts' expectations
Nvidia is best known for selling video game cards, but now it’s best known for so-called AI accelerators, chips derived from its graphics processors that are used to develop artificial intelligence software by feeding it information.
This process is called training, and it enables AI models to better recognize and respond to real-world inputs. Nvidia’s components are also used in systems that run the software, a phase called inference, and help power services like OpenAI’s ChatGPT.
Results last quarter beat Wall Street expectations, and the Santa Clara, California-based company’s board approved an additional $50 billion in stock buybacks.
Nvidia’s revenue more than doubled to $30 billion in the fiscal second quarter ended July 28.
Nvidia is ahead of other chipmakers because its technology is well suited to the needs of artificial intelligence. But competitors are working hard to catch up. Advanced Micro Devices is now its closest competitor, while Intel, once the world's largest chipmaker, is further behind. Their combined revenue in this market is only about 5% of Nvidia's total revenue.
Nvidia’s data center unit, by far its biggest source of sales, generated $26.3 billion in revenue last quarter. Gaming chips provided $2.9 billion. Analysts had set targets of $25.1 billion for the data center unit and $2.79 billion for the gaming unit.
The Blackwell chips are expected to be launched in the coming months and bring a new round of growth. Analysts downplayed concerns about delays, noting that demand for the company's current generation of products remains huge. This could help Nvidia cope with any delays without suffering a major financial hit.
Describing the challenges with the Blackwell chip, Nvidia said it had to change a step in the production of masks, the templates used to burn circuit patterns into the material deposited on silicon wafers, to improve yields.
Nvidia said production of the Blackwell chips will increase in the fourth quarter and continue into the next fiscal year.
On a conference call after the earnings release, analysts sought more details about how much revenue the new Blackwell chips would bring in and when. Huang and Chief Financial Officer Colette Kress stuck to their promise of billions of dollars in revenue in the fourth quarter and declined to elaborate further.
The stock price continued to fall as the call progressed without an answer.
Huang, in his usual high-level predictions about the future of computing, said the world’s data centers will need $1 trillion worth of equipment to replace outdated equipment. He said that replacement process has only just begun.
He said AI is taking over computer searches and helping companies speed up business processes, and countries also need AI to protect data.
“It affects the way every layer of computing is done,” Huang said.
