Nvidia's decline in quarterly revenue growth rate is really concerning
Nvidia's latest growth metrics don't impress Wall Street.
Nvidia reported earnings which showed the company's earnings and revenue grew more than 100% from the previous year. But it also marked the company's slowest year-over-year revenue growth, 122%, and the rate of growth compared to the previous year was less than half what Nvidia reported in the first two quarters of 2024.
And this growth slowdown, D.A. Davidson managing director Gil Luria told Yahoo Finance, is the chief concern with the stock right now and why he maintains a Neutral rating.
"Next year we're going to have, at the very least, decelerating growth and possibly at some point, revenue declines," Luria said.
"Where if you look at consensus estimates, sell-side estimates, they are for the growth to continue at very, very high rates that are very hard to justify considering Nvidia's revenue is these other companies margins."
At some point, Luria argued, the big tech like Microsoft, Amazon, Alphabet, and Meta are going to slow their spending. And given they represent the lion's share of Nvidia's current AI chip sales, that'd likely be a headwind to future revenue growth.
Nvidia's earnings call was still rather upbeat. CEO Jensen Huang described the demand for the AI leader's new Blackwell chip as "incredible." And plenty of Wall Street analysts remained bullish on the stock as fears about delays on the Blackwell chip were somewhat eased during the earnings call.
But for investors assessing a stock that has rallied more than 1000% since the start of the current bull market in Oct 2022, slowing growth appears to be a sticking point. As Jefferies analyst Blayne Curtis wrote in a note to clients, Nvidia's guidance for current quarter revenue of USD32.5 billion - plus or minus 2% - appeared to be "good but not good enough."
Nvidia's results also didn't surprise Wall Street at the same pace that they had been.
The company posted its slimmest upside surprise to Wall Street's revenue expectations since the start of 2023. Its roughly 5% beat on earnings per share was the narrowest surprise since before the AI revolution kicked off in 2023, too.
"The size of the beat this time was much smaller than we've been seeing," Carson Group chief markets strategist, Ryan Detrick wrote in reaction to the earnings release.
"Even future guidance was raised, but again not by the tune from previous quarters. This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season.”
Nvidia's market cap before the earnings report was USD3.1 trillion. This means investors expect Nvidia to earn around USD140 billion per year once it becomes a more mature company like Alphabet which is currently trading at a forward P/E multiple of 21. Nvidia's quarterly revenue and profit were USD30 billion and USD16.6 billion respectively though. Is it reasonable to assume that Nvidia's quarterly profit can go from USD16.6 billion today to USD35 billion in a few years and then continue to grow at the same rate that Alphabet's quarterly profit is growing?
Investors were surprised to see that Nvidia projected only an 8% quarterly revenue growth rate for its next quarterly report (vs. 15% for the last quarter). The decline in quarterly revenue growth rate is really concerning and if the decline continues, it will be clear to investors that Nvidia will never get to the USD140 billion annual profit figure that its current stock price is demanding.
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151463927 : Are you serious? Do you know how percentages work? Theyre a $3T company and rev growing at 80% its not concerning at all, stop being a shill bear.
TechTrek Invest 151463927 : I know any company would love to be growing by 80%