Nvidia’s stock has skyrocketed this year, nearly quadrupling in value. Over the past two years, it has risen more than ninefold, giving the company a staggering market valuation of $3.6 trillion. Despite booming demand for its AI chips, investors are worried about a potential slowdown in sales growth.
On Wednesday, Nvidia reported its slowest projected revenue growth in seven quarters, missing investors’ high expectations. The stock dropped 5% following the earnings announcement but quickly recovered to a 2.5% loss in after-hours trading. It closed the regular session 0.8% lower.
Earlier in the week, Nvidia’s stock surged over 20%, setting a record intraday high. This remarkable growth solidifies Nvidia’s place among the world’s most valuable companies.
Blackwell AI Chips: Opportunities and Early Challenges
Nvidia recently introduced its Blackwell family of AI chips. While these chips initially have lower gross margins, Nvidia expects improvement as production scales up. CFO Colette Kress shared that the chips are performing well with customers and exceeding early sales targets for the fourth quarter.
Responding to reports of overheating in the flagship liquid-cooled servers featuring 72 Blackwell chips, CEO Jensen Huang reassured stakeholders. “There are no issues with our Grace Blackwell liquid-cooled systems,” Huang said, highlighting strong deployment by major clients like Microsoft, Oracle, and CoreWeave.
Initially, Blackwell chips deliver gross margins in the low 70% range. Nvidia expects this to rise to mid-70% as production ramps up. The company has forecast fourth-quarter revenue at $37.5 billion, slightly above analysts’ estimates of $37.09 billion.
Slowing Growth Amid High AI Demand
Nvidia’s AI chips remain in high demand, but growth is slowing. For the fourth quarter, the company projects revenue growth of 69.5%, down from 94% in the third quarter.
“Investors have grown accustomed to Nvidia’s earnings surprises, but sustaining this pace is harder,” said Ryan Detrick, chief market strategist at Carson Group. “This report remains solid, but expectations are soaring.”
Supply chain issues are contributing to Nvidia’s challenge in exceeding revenue forecasts. However, analysts like Brandon Hoff from IDC predict a potential rebound in growth if Nvidia achieves gross margins above 75%.
Manufacturing and Supply Chain Bottlenecks
Nvidia faces production constraints due to limited advanced chip manufacturing capacity at TSMC, its primary fabrication partner. CEO Jensen Huang reassured investors, stating that ramping up Blackwell chip production will improve yields, reduce cycle times, and expand production lines.
Yields measure the percentage of functional chips per wafer. Nvidia has already addressed a design flaw in Blackwell chips, revising TSMC’s blueprints to optimize production. TSMC shares dropped 1% in early Asian trading following these developments.
Data Center Growth Fuels Nvidia’s Revenue
For the third quarter, Nvidia reported adjusted earnings of 81 cents per share, exceeding analysts’ predictions of 75 cents. Revenue from the data center division, Nvidia’s largest contributor, surged 112% to $30.77 billion for the quarter ending October 27. However, this growth slowed compared to the previous quarter’s 154%.
Cloud companies continue to invest heavily in data centers to meet the rising demands of generative AI systems, driving Nvidia’s revenue. Despite strong overall performance, Nvidia’s adjusted gross margin dropped slightly to 75%.
Nvidia’s future growth depends on overcoming production challenges while capitalizing on strong AI chip demand. As it navigates investor expectations and manufacturing constraints, the company remains a dominant force in the technology sector.
