Damo summed up this financial report and market reaction as “the result of a bull market case, but a bear price action.” Bank of America Merrill Lynch said that Nvidia has unique growth opportunities and strong execution. Goldman Sachs has a constructive attitude about Nvidia's data center prospects, while Barclays believes that key long-term issues have been resolved.
After a lapse of three months, we welcome another Nvidia moment!
According to the financial report released overnight, Nvidia's revenue for the second fiscal quarter of 2025 (second quarter of the natural year 2024) surged 1.2 times year-on-year to 30 billion US dollars, reaching the highest value in the market's expected range (29 billion-30 billion US dollars). The revenue guide for the third fiscal quarter (3 quarter) was 32.5 billion US dollars, which is in the middle of the expected range (32 billion-33 billion US dollars).
Although revenue continued to grow rapidly, the guidelines failed to meet Wall Street's most optimistic expectations. Coupled with the delay in delivery of Blackwell, which claims to be the “strongest chip in history,” Nvidia's stock price plummeted 8% after the US market.
After the big financial report came out, Wall Street analysts made a summary one after another. Summarizing Nvidia's review in the second quarter, Nvidia's results in the second quarter were excellent, but this was far from enough; the market's expectations for this excellent student were too high.
Wall Street believes that the market currently has two major concerns: when Blackwell can become a new engine for Nvidia's performance growth, and whether demand for AI chips can maintain high growth.
In response to the first question, Nvidia said in a conference call that as Blackwell begins mass production in the fourth quarter, it is expected to receive billions of dollars in revenue, but did not answer whether the multi-billion dollar revenue is incremental.
Citi anticipates that Nvidia's stock price may remain volatile for the next two quarters until Blackwell pushes annual sales and gross margin to an inflection point. As Hopper and Blackwell's production costs rise, most analysts expect Nvidia's gross margin to continue to decline over the next few quarters.
Regarding the second question, Hwang In-hoon remains optimistic about the future of AI applications, reaffirming that global data centers are a trillion dollar opportunity. In Wall Street reviews, Citibank, Bank of America Merrill Lynch, Goldman Sachs, and Damo all expressed optimism about future AI chip demand.
Unlike a market full of concerns, most Wall Street investment banks are optimistic about Nvidia's growth prospects. Citibank, Bank of America Merrill Lynch, and Goldman Sachs all maintained their buying ratings for Nvidia. Bank of America Merrill Lynch claims that Nvidia has unique growth opportunities and strong execution. Goldman Sachs has a constructive attitude about Nvidia's data center prospects, while Barclays believes that key long-term issues have been resolved.
Here's Wall Street's summary and review of Nvidia's Q2 earnings report and conference call:
Morgan Stanley
Morgan Stanley summed up Nvidia's earnings report and the market's subsequent reaction as “the result of a bull market case, but a bear price action.”
Damo analyst Shawn Kim and others wrote, “Nvidia's second-quarter results are in line with expectations, there are no questions about demand, and the forward-looking guidance is positive.” Overall, its performance was good, but “the market's expectations for Nvidia are too high.”
Despite Nvidia's revenue and guidance exceeding market expectations, Nvidia's stock price experienced a sharp negative reaction. Damo believes that this negative situation may also mean that investors are becoming more cautious and expect growth in the AI industry to slow down, especially after a long period of growth.
Bloomberg
Bloomberg analyst Ian King concluded:
Nvidia's sales for the quarter were broadly in line with analysts' expectations, but disappointed the most optimistic investors.
The biggest news is that Nvidia acknowledged that the upcoming Blackwell chip design had some issues.
Blackwell had a problem with the production process and needed to be reworked. However, this chip will still bring in billions of dollars in revenue in the fourth quarter.
Analysts wanted more details about the launch of Blackwell's product line, but Nvidia did not provide it, leading to a further sharp drop in the company's after-market share price during the conference call.
In the conference call, Wong In-hoon is still optimistic about the future of AI applications and said that the company has only just begun to push to re-equip global data centers with its devices. This is a trillion-dollar opportunity.
After the conference call, Hwang In-hoon said in an exclusive interview with Bloomberg TV that supply will continue to improve every quarter, and next year's supply will be a big improvement compared to 2024. He said that overall, next year will be a great year.
Citi
Citi maintains Nvidia's purchase rating and a target price of $150, which is based on a price-earnings ratio of 35 times the projected EPS (earnings per share) in 2025. The agency's analyst Atif Malik wrote:
Blackwell chips: Management made it clear that Blackwell is not expected to go public in October, only samples. Regarding mask defects that occurred during Blackwell's production process, management mentioned that they delayed shipping by a few weeks due to mask defects. Still, they're still expecting billions of dollars in revenue for the fourth quarter.
They expect demand for Hopper series chips from cloud service providers (CSPs) and enterprises to remain strong as supply chains remain limited.
Non-GAAP gross margin: Gross margin is expected to decline in the third and fourth quarters, mainly due to an increase in the combined ratio of higher-performance H200 chips and high-bandwidth memory (HBM), driving up GPU production costs.
As for next year, management expects gross margin to continue to decline in the first quarter (Citi estimates more than 200 basis points). Blackwell is a key factor, and gross margin for the second quarter will depend on how Blackwell is mass-produced. Nvidia expects Blackwell's production to meet their expectations.
AI networks: Nvidia sees continued demand for Infiniband (“unlimited bandwidth” technology) and plans to develop the next generation of Infiniband products. Nvidia, on the other hand, is adding to its Ethernet products by providing many of the features they offer in Infiniband products. In terms of corporate demand, management believes there are several key drivers: AI agents, co-pilots, and robots.
Citi anticipates that Nvidia's stock price may remain range-bound for the next two quarters until Blackwell pushes Nvidia's annual sales and gross margin to an inflection point. The Consumer Electronics Show (CES) in January is Nvidia's next major share price catalyst.
Furthermore, at a time when enterprise AI demand takes off, AI adoption is still in the third and fourth stages, and demand for data computing will increase significantly by 10-20 times over the long term.
Bank of America Merrill Lynch
Bank of America Merrill Lynch reaffirmed its buying rating for Nvidia, raised its EPS forecast for the 2024/25 and 2025/26 fiscal years by 9% to $2.81/3.90, and raised the target price from $150 to $165.
Bank of America Merrill Lynch Vivek Arya and other analysts said:
The (Nvidia) share price fluctuation is likely due to a possible delay of one quarter in Blackwell's delivery.
The agency also expects Nvidia's gross margin to fall to 75% in the third quarter and further to 73% in the fourth quarter as Blackwell's costs rise.
Despite possible fluctuations in quarterly results, Bank of America Merrill Lynch is optimistic about Nvidia's long-term growth prospects, saying that Nvidia has unique growth opportunities and strong execution, thanks to its leading position in the field of generative AI and a market share of more than 80%.
The promotion and application of generative AI technology is still in its early stages (1-1.5 years), and the investment cycle is expected to continue for 3 to 4 years.
Importantly, the next generation of AI models will require 10-20 times more computational power to train (Blackwell's computational power is only 3-4 times higher than Hooper's).
AI deployment remains a critical task for cloud-/enterprise customers around the world, and Nvidia provides the best one-stop model.
Bank of America Merrill Lynch believes that the main factors driving the rise in Nvidia's stock price include:
Demand for the Hooper series is strong; despite being launched for two years, demand is expected to be higher in the second half of the year, and Blackwell will contribute additional revenue.
Demand from sovereign customers grew, and order volume increased from a high single digit of hundreds of millions of dollars to a low of two digits of US dollars. The customer structure was diversified, with hyperscale customers accounting for 45%, and Internet service companies and enterprise customers accounting for 50%.
AI Ethernet products are in strong demand and are expected to become a multi-billion dollar product line.
Pre-orders increased significantly, rising 149% year over year to $27.8 billion in the second quarter, showing the market's confidence in Nvidia products.
Goldman Sachs
Goldman Sachs maintained Nvidia's purchase rating and target price of $135. The agency's analyst Toshiya Hari and others pointed out:
Although we expect Nvidia's gross margin for the fourth fiscal quarter (Q1 2025) to be less than 70%, and the company's growing operating expenses budget, will drive the market to reprice gross margin expectations for future fiscal years, we remain constructive about the revenue prospects of Nvidia data centers, which cover cloud services, consumer internet and enterprise customers, and training and inference workloads.
On the positive side, with regard to Blackweill, management confirmed that they had redesigned it without compromising on performance, and that it could bring in billions of dollars in revenue in the fourth fiscal quarter, not including Hooper's revenue, which continues to grow.
In our model, we lowered our 2026/27 adjusted non-GAAP gross margin forecast by 200 basis points/210 basis points, but due to increased data center revenue, we moderately raised our 2026/27 adjusted non-GAAP earnings per share forecast by 3%/1%.
Barclays
Barclays maintains an overrated rating for Nvidia and a target price of $145. The agency's analyst Tom O'Malley and others stated in the report:
Although the guidance fell short of the most optimistic market expectations, we believe the key long-term issues have been addressed, paving the way for a strong start to fiscal 2025.
We understand that investors may be dismissive of this financial report from a superficial perspective, but the key issues are moving in a positive direction.
Although the guidance did not exceed the consensus estimate of $2 billion as before, gross margin was lower, and operating expenses were higher, but more importantly, Blackwell's concerns about delays have been addressed. Revenue is expected to be multi-billion dollars in the fourth quarter, and Hooper will continue to grow until the end of the year.
Overall, revenue has clearly maintained continuity and stability, and the company also specifically mentioned that it is expected to continue to grow significantly next year.
The stock market's reaction seems to be more related to changes in investment themes than to what we think is a more conservative guide during product transitions. We will increase our holdings when the stock price falls (Nvidia).