Nvidia Surpasses Wall Street Expectations

By Arsheeya Bajwa

(Reuters) – Nvidia (NASDAQ:NVDA) has outperformed expectations for revenue over the past eight quarters. Analysts now anticipate a slowdown in growth, raising concerns about how the company will manage delays and supply chain issues in selling its latest AI chips, which could affect its stock price.

The chipmaker, integral to the generative AI boom, is expected to report a staggering 82.8% increase in third-quarter sales, reaching $33.13 billion. This growth rate marks the slowest in six quarters, following five consecutive quarters of at least doubling sales.

For the fourth quarter ending in January, including sales from Nvidia's new Blackwell chips, growth is likely to further decline to 67.6%. Delays due to design flaws in production have raised investor questions about Nvidia's ability to achieve projected revenue of “several billion dollars” from Blackwell.

Analyst Insights:
"It's all about Blackwell right now from an investor perspective," said Hans Mosesmann from Rosenblatt.

Morgan Stanley analysts predict Blackwell revenue to be between $5 billion and $6 billion, while Piper Sandler estimates range from $5 billion to $8 billion due to the chips being 30 times faster than previous models. Ivana Delevska from Spear Invest projects revenue at $12 billion to $13 billion.

However, supply chain constraints could limit production capacity going into 2025, according to Nvidia’s contract manufacturer TSMC. Morgan Stanley analysts caution that even a minor delay could significantly impact revenue.

Nvidia's fourth-quarter results will face tough year-on-year comparisons following increased investment in AI infrastructure post-OpenAI's ChatGPT launch in late 2022, which utilized many of Nvidia's graphics processors. The company has exceeded Wall Street estimates by tightening margins over the past four quarters and has surpassed Apple (NASDAQ:AAPL) to become the world's most valuable company.

Margin and Expenses:
Nvidia's adjusted gross margin is expected to decline over three percentage points to 73.6%, impacted by high development and production costs for its new AI chips. Research and development, along with adjusted operating expenses, are projected to reach record levels during this period.

Despite these challenges, demand for Nvidia's GPUs is expected to remain strong as cloud service providers, including Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), invest heavily in AI data centers using Nvidia's chips to develop advanced generative AI applications.

Nvidia's proprietary CUDA software framework, used for programming its processors, is key to its dominance in the AI chip market, which commands approximately 80% market share. The software has evolved into a significant revenue stream, with continued growth exceeding 100% annually, according to John Belton from Gabelli Funds.