The chipmaker’s shares fell 6% in after-hours trading, weighing on the shares of other chipmakers. The report was seen as a cash cow for the tech industry, and the results were met with mixed reviews despite impressive growth and profits.
“That’s the problem,” said Ryan Detrick, chief market strategist at Carson Group. “The estimate overshoot this time was much smaller than what we’ve seen in the past.” He added, “Future guidance was raised as well, but again, not by as much as last quarter. It’s still a great company with 122% revenue growth, but the bar may have been set a little too high for this quarter’s results.”
The company’s revenue and gross profit forecasts for the current quarter were not far from analyst expectations and were not in line with its recent track record of beating Wall Street targets, overshadowing the company’s upside to second-quarter revenue and adjusted profit expectations and its announcement of a $50 billion share repurchase plan.
Nvidia has posted more than 200% revenue growth for the past three consecutive quarters, but the company’s ability to beat expectations is at increasing risk as Wall Street raises the bar even higher with each success. CEO Jensen Huang highlighted the insatiable demand for the company’s powerful graphics processors, which have become the flagship of generative AI technologies such as OpenAI’s ChatGPT. “We’re seeing more and more demand,” he told analysts on a conference call. Huang confirmed reports that Nvidia’s production ramp for its next-generation Blackwell chips has been delayed until the fourth quarter, but downplayed the impact, saying customers are snapping up the current generation of Hopper chips. The company said it is shipping Blackwell samples with tweaked designs to partners and customers and expects billions of dollars in revenue from those chips in the fourth quarter.
Shares in chipmakers including Advanced Micro Devices Inc. and Broadcom Inc. both fell nearly 4%. Asian chipmakers SK Hynix Inc. was down 4.5% and Samsung Inc. was down 2.8% in Asian markets on Thursday morning.
Investor Concerns
Much depends on Nvidia’s outlook: The company’s shares have soared more than 150% this year, adding $1.82 trillion to its market capitalization and propelling the S&P 500 to record highs. If shares continue to fall in after-hours trading on Wednesday, Nvidia’s market capitalization will fall by $175 billion.
The prediction could stomp new worries about slow returns on investments in generative AI, leading some investors to worry that tech giants might rethink the billions of dollars they’re pouring into data centers — worries that have rippled through a rally in AI stocks in recent weeks.
Nvidia’s largest customers — Microsoft, Alphabet, Amazon and Meta Platforms — are expected to spend more than $200 billion in capital expenditures in 2024, most of it going towards building out AI infrastructure.
Shares in those companies fell less than 1% in after-hours trading on Wednesday.
“This reflects growing investor uncertainty about the long-term viability of the generative AI market, with the market as a whole seemingly hinged on Nvidia’s performance,” said eMarketer analyst Jacob Born.
Nvidia has also faced regulatory scrutiny over its own practices.
The company said in its quarterly report that it had received requests from U.S. and South Korean regulators for information regarding “sales of GPUs, supply allocations, foundation models, and investments, partnerships and other agreements with companies that develop foundation models.” Until now, the company had only mentioned inquiries from the EU, UK and China.
Reuters reported last month that French antitrust regulators plan to sue Nvidia for alleged anti-competitive practices, following earlier media reports that U.S. regulators were investigating whether Nvidia had tried to bundle its networking equipment with popular AI chips.
NVIDIA now expects adjusted gross margins of 75% for the third quarter, up +/- 50 basis points. Analysts on average are expecting gross margins of 75.5%, according to LSEG data. The company reported second-quarter gross margins of 75.7%, above the average forecast of 75.8%.
The company’s gross margins continue to outpace competitors, thanks in part to the premium pricing of its faster chips: AMD posted an adjusted margin of 53% in the second quarter.
Nvidia expects third-quarter revenue of $32.5 billion, plus or minus 2%, compared with analysts’ average estimate of $31.77 billion, according to LSEG data.
Second-quarter revenue was $30.04 billion, beating the $28.7 billion estimate. Excluding items, Nvidia’s second-quarter earnings per share were 68 cents, beating the 64 cents estimate.
Nvidia’s data-center division’s revenue rose 154% to $26.3 billion in the second quarter ended July 28, beating expectations of $25.15 billion. It was up 16% from the first quarter.
The company also makes money by selling chips to gaming and automotive companies.
