Dear AI Fans, Here's Everything You Need to Know About Nvidia's Latest Earnings Report
$NVIDIA (NVDA.US)$ reported its fourth consecutive quarter of triple-digit revenue growth, surpassing estimates and issuing a strong forecast. The company also announced a $50 billion share buyback plan. Despite this, the stock dropped 7% in extended trading.
Why Shares Dropped After Hours Despite Beating Expectations
Nvidia, buoyed by the AI boom, has reached a $3 trillion market cap, second only to $Apple (AAPL.US)$. The company reported 122% annual revenue growth to over $30 billion and expects sales to rise 80% to about $32.5 billion next period, exceeding analysts' expectations of $32 billion. However, Stacy Rasgon, an analyst at Bernstein, mentioned that investor expectations were higher than analyst estimates, between $33 billion to $34 billion. To see a stock increase, Nvidia would have to significantly exceed these figures in its guidance.
Additionally, Nvidia's gross margin fell slightly to 75.1% from 78.4% the previous quarter, though still up from previous years. For the full year, Nvidia anticipates a gross margin in the mid-70% range, slightly below analysts' expectations of 76.4%.
While the numbers indicate that the AI revolution remains alive and well, the smaller beat compared to the previous quarters adds to the multiple warning signs across the tech space earlier in this earnings season," Investing.com senior analyst Thomas Monteiro said in an email.
Q2 Earnings Details
In Q2, Nvidia's adjusted EPS was $0.68, beating expectations. The data center segment, driven by AI adoption, generated $26.27 billion, a 154% year-over-year and 16% sequential increase. Other segments also saw growth: gaming rose 16% to $2.88 billion, professional visualization jumped 20% to $454 million, auto climbed 37% to $346 million, and original equipment manufacturer increased 33% to $88 million. The gross margin was 75.1%, up from the previous year but down sequentially due to inventory provisions and product mix.
• Strong Data Center Performance Driven by AI Demand
Nvidia's data center business, driven by AI infrastructure demand, generated $26.3 billion, making up 87% of its total revenue. Big Tech companies like $Alphabet-A (GOOGL.US)$, $Microsoft (MSFT.US)$, and $Meta Platforms (META.US)$ are aggressively investing in AI and purchasing Nvidia chips, despite developing their own silicon. Meta, Microsoft, and Google have all announced significant increases in AI-related capital expenditures. Research suggests most AI model training at major tech firms will use Nvidia chips by next year. CEO Jensen Huang emphasized the broad applicability and efficiency of Nvidia's chips across various technologies. Despite stock hype, Nvidia's strong fundamentals are expected to sustain its success.
Key Takeaways From Earnings Call
• About Blackwell and Hopper
Nvidia's CFO attributed a dip in gross margins to production issues with the new Blackwell chip and a higher mix of new products in the Data Center segment. Gross margins declined from the first to the second quarter of 2024, primarily due to inventory provisions for low-yielding Blackwell material. Nvidia began shipping Blackwell samples in Q2 and expects full production to ramp up in Q4 and into the next fiscal year.
CEO Jensen Huang emphasized strong demand for both the current Hopper chips and the upcoming Blackwell chips. While Hopper meets immediate infrastructure needs for AI companies, Blackwell's capacity is still ramping up. Despite high interest in Blackwell, demand for Hopper remains robust.
CFO Colette Kress indicated that Hopper demand will grow in the second half of the year but provided no specific forecasts for Q3 or Q4. Revenue from Blackwell's initial rollout will add to Q4 figures. Analysts are likely to seek more details on the anticipated "several billion dollars" in Blackwell revenue for fiscal Q4. Huang highlighted Blackwell as an advanced AI infrastructure platform with significant performance improvements over Hopper.
• Cloud Providers Boost Nvidia's Data Center Sales to Record High
Nvidia's data center sales more than doubled year-over-year in Q2, reaching a record high. CFO Colette Kress noted that around 45% of these sales were driven by cloud service providers, while consumer, internet, and enterprise customers contributed half of the revenue. This surge in sales reflects increased spending on AI by tech giants like Microsoft, Alphabet, and Amazon, all of which are Nvidia customers.
• Competitive Market in China
The CFO anticipates increased competition in China. Despite export controls, data center revenue from China remains below previous levels but grew sequentially in the second quarter, significantly contributing to overall data center revenue.
Analysts' Comments
• Ryan Detrick, chief market strategist at Carson Group, commented that although Nvidia's revenue is growing, expectations for this earnings season were set too high. He noted that while Nvidia consistently beats earnings, the margin of this recent beat was smaller than usual. Additionally, although future guidance was raised, it wasn't as significant as in previous quarters.
• Dan Ives, an analyst at Wedbush Securities, described Nvidia's earnings as part of a "historic, meteoric rise" under CEO Jensen Huang. Despite Nvidia's robust numbers and an estimated $32.5 billion in Q3 revenue, some analysts had slightly higher expectations and are scrutinizing the figures for any weaknesses.
I view it as kind of like splitting hairs," Ives said.
The demand for AI technology is only accelerating, he added, echoing Huang's previous statements that the world is in the midst of the next industrial revolution.
• "The Nvidia result has become very much like a macro event, in some ways as big as the payrolls and CPI releases in terms of market impact," said Justin Onuekwusi, chief investment officer at wealth manager St James Place.
There's a lot of money, a lot of leverage in these consensus names and it will take only a slight disappointment to cause significant volatility in markets."
• Despite concerns about potential Blackwell delays, research firm Third Bridge estimates that 60-70% of AI model training at so-called hyperscalers like Microsoft and Google will take place using the new Nvidia chips by the end of next year, according to analyst Lucas Keh.
Source: Nvidia, CNN Business, Business Insider, Investing.com, Investopedia, CNBC, AP News, The Motley Fool
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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10baggerbamm : Blackwell begins to ship late Q3 resulting in several billion dollars for Q4 Blackwell is the highest margin of any other product line which will be fully ramped up for shipping in q1 resulting in another blowout quarter at the end of q1.