Nvidia’s stock has surged nearly fourfold this year and over ninefold in two years, boosting its market value to $3.6 trillion. Strong demand for AI chips drives the company forward, but investors worry about slowing sales growth.
On Wednesday, Nvidia projected its slowest revenue growth in seven quarters, falling short of some investors’ high expectations. Following the announcement, Nvidia’s stock initially dropped 5% but recovered slightly, closing 2.5% lower in after-hours trading. Earlier in the regular session, it fell 0.8%.
Despite these concerns, Nvidia remains a Wall Street favorite. Its stock rose over 20% in two months, reaching a record intraday high on Monday. The company’s significant stock surge cements its position among the world’s most valuable businesses.
Blackwell AI Chips: High Demand but Challenges Persist
Nvidia is launching its Blackwell family of AI chips, expected to lower initial margins but improve with scaled production. Customers have warmly received these new chips, and the company is set to exceed fourth-quarter sales expectations, CFO Colette Kress stated.
CEO Jensen Huang addressed concerns about overheating issues during initial tests of a flagship liquid-cooled server with 72 Blackwell chips. He reassured investors that there are no ongoing issues, confirming deployments by Microsoft, Oracle, and CoreWeave. “The engineering is challenging, but we’re in good shape,” Huang said.
Initially, Blackwell chips will have gross margins around 70%, with improvements expected as production scales. Nvidia forecasts fourth-quarter revenue at $37.5 billion, slightly above analysts’ $37.09 billion estimates.
Slower Growth Amid High Demand
Nvidia expects revenue growth to slow to 69.5% in the fourth quarter, down from 94% in the third quarter. Despite this, massive demand for its AI chips, which power advanced systems, continues to fuel growth.
“Investors are used to Nvidia’s large earnings surprises, but maintaining that pace is tougher,” said Ryan Detrick, chief market strategist at Carson Group. Supply chain constraints limit Nvidia’s ability to match previous revenue beats, though analysts like IDC’s Brandon Hoff believe growth could accelerate if margins exceed 75%.
Manufacturing Bottlenecks and Production Improvements
A critical bottleneck is limited advanced manufacturing capacity at TSMC, Nvidia’s primary chip fabricator. While CEO Huang did not directly address TSMC-related issues, he highlighted efforts to expand production lines, improve yields, and reduce cycle times.
Nvidia has also adjusted its Blackwell chip designs to resolve manufacturing flaws. As production ramps up, these changes aim to boost output. TSMC’s shares fell 1% in early Asian trading on Thursday following the news.
Strong Data Center Growth Balances Challenges
In the third quarter, Nvidia reported adjusted earnings of 81 cents per share, surpassing analysts’ 75-cent estimate. Its data center business, the main revenue driver, saw a 112% sales increase to $30.77 billion. This marks a slowdown from the previous quarter’s 154% growth.
Cloud companies’ investments in Nvidia’s chips for expanding data centers continue to bolster revenue. However, Nvidia’s adjusted gross margin fell to 75%, reflecting some challenges amid sustained demand for its products.
