Nvidia (NVDA.O) forecasted on Wednesday that its revenue growth will slow for the seventh consecutive quarter, as the AI chip manufacturer failed to meet some investors' high expectations, which have made it the most valuable company in the world.
After the company released its earnings report, its stock price fell by 5%, but quickly narrowed its losses, dropping 2.5% in after-hours trading. During regular trading hours, the stock price fell by 0.8%. In Thursday's early trading in Frankfurt, the stock price dropped by 1.9%.
Before the earnings report was released, market expectations for Nvidia were very high, with the stock price rising over 20% in the past two months and hitting an all-time intraday high on Monday. Nvidia's stock price has nearly quadrupled this year, rising more than nine-fold over the past two years, with a market capitalization of $3.6 trillion.
Nvidia is launching its powerful Blackwell series AI chips, and although these chips will initially affect the company's gross margins, the margins are expected to improve over time.
The new series of processors has been accepted by Nvidia's customers, and the company expects to exceed its initial sales targets in the fourth quarter, anticipating sales in the billions of dollars, Nvidia CFO Colette Kress said during a conference call with analysts on Wednesday.
When asked about media reports of overheating issues in flagship liquid-cooled servers during initial testing, CEO Jensen Huang stated, "There are no issues; customers like Microsoft (MSFT.O), Oracle (ORCL.N), and CoreWeave are implementing these systems."
"Our Grace Blackwell liquid-cooled system has no issues," Huang said. "Engineering is not easy because what we are doing is difficult, but we are doing it well."
Initially, the gross margin for the Blackwell series chips will be around 70%, but as production gradually ramps up, the margin is expected to improve to around 75% in the medium term, Kress stated.
The company predicts fourth-quarter revenue of $37.5 billion, with a fluctuation of 2% up or down, compared to analysts' average expectation of $37.09 billion, according to data compiled by LSEG.
Despite benefiting from the tremendous demand for the company's chips, which are the brains of complex generative AI systems, the growth rate remains impressive, but it shows a slowdown compared to previous quarters when Nvidia's sales typically doubled at least.
Nvidia's fourth-quarter forecast indicates that the company's revenue growth will slow to about 69.5%, down from 94% in the third quarter.
"Investors have become accustomed to this company exceeding expectations, but it is becoming increasingly difficult to do so," said Ryan Detrick, chief market strategist at Carson Group. "This is still a very solid report, but the fact is that when targets are set so high, things become more challenging."
However, the slowdown in revenue growth masks the enormous demand for the company's AI chips, which dominate the market.
Supply chain issues have made it difficult for Nvidia to report the significantly better-than-expected revenues that helped it become a darling of Wall Street. However, IDC analyst Brandon Hoff stated that if the company's gross margin exceeds 75%, growth could accelerate again.
One bottleneck in the company's chip supply is the limited capacity of its manufacturing partner TSMC (TSM.N) in advanced manufacturing technologies.
Jensen Huang declined to comment on specific production issues at TSMC, but he also stated, "As we gradually ramp up (Blackwell's production), we will continue to add more production lines, improve our yield rates, and enhance production cycles. All of these will increase our output."
Yield rate refers to the number of functional chips on each wafer. The company stated that it has resolved the design flaws of the chip by altering TSMC's blueprint used for manufacturing Blackwell chips.
Article reposted from: Jinshi Data
