Thoughts on $NVDA earnings

$NVDA Earnings Impressions

The results were as expected, and the stock price reacted accordingly.

Specifically, the earnings exceeded expectations and achieved a double beat. As mentioned in the recent earnings forecast, this double beat is not something new for NVDA investors. However, whether it was not enough to meet expectations, dissatisfaction with the guidance, or simply news-driven selling, the stock price declined for one of these reasons.

Taking a closer look. The datacenter business recorded a significant revenue increase of 112%. Nvidia's datacenter business continues to grow at a much faster pace than Nvidia's other business divisions. In other words, this means the company is losing diversity over time. Increasing reliance on a single business division (datacenter) is good as long as that division is performing well. However, if issues arise in that field, Nvidia would be unable to maintain its balance.

If there is one point of dissatisfaction, it would be the slowdown in growth. Looking at the year-on-year growth rates of the recent quarters...

Next is guidance. Looking at the forecast for the 4th quarter, I get the impression that the growth could further slow down. The company expects revenue to be approximately $37.5 billion, which would be a 7% increase from the 3rd quarter aggregate. Although the company's guidance is generally conservative, even taking that into account, there is a significant possibility of growth slowdown.

If the company exceeds the guidance for this quarter as it has done in the past, it will report revenue of $40 billion. This would be a 14% increase compared to the $35 billion revenue in the 3rd quarter. While a growth rate in the 10% range compared to the previous quarter is fantastic, it is below recent growth rates and I believe it aligns with the trend of 'growth slowdown', particularly for nvidia.

Another important aspect to consider is the gross profit margin. If the gross profit margin stabilizes at 75%, it would not be bad at all. It's a high gross profit margin in absolute terms. However, with the current situation where the gross profit margin is not expanding, compared to the past where gross profit margin expansion drove profit growth, the profit growth rate will decrease. The company's guidance indicates a gross profit margin of 73.5% for this quarter, which is below recent levels.

I think the predicted decline in the 4th quarter is likely due to the launch of Blackwell, but I still don't think this guidance can be described as 'completely positive'. This seems to be another sign that the growth in gross profit margin will not be a tailwind for future earnings.

In conclusion, I believe that this quarter will continue the slowdown in growth, leading to a similar outcome and response. While the gross profit margin seems to be plateauing in the near term, and the profit growth rate is still high, it has significantly decreased.

However, in the long term (yearly), I am bullish. I think Blackwell also has more to offer. There are potential risk factors (Federal Reserve policy, geopolitical tensions, potential delays or technical issues, high stock price volatility, etc.) that could weigh on the medium term, but I think most people are likely to hold in the long term, so for now, I thought 'Hold' would be fine.