Nvidia, a leader in graphics processing units (GPUs) and artificial intelligence (AI) chips, delivered remarkable financial results for its third quarter ending October 27, 2024. The company’s revenue nearly doubled compared to the same period last year, yet its stock saw a decline following the earnings announcement.
Despite setting new benchmarks in revenue and net income, the company’s guidance for the next quarter left some investors unimpressed.
Blockbuster Financial Performance
For Q3, Nvidia reported revenue of $35.08 billion, an astounding 94% jump from $18.12 billion in the same quarter of 2023. The company’s net income also saw significant growth, climbing to $19.31 billion—more than double the $9.24 billion achieved during the same period last year. Adjusted earnings per share (EPS) came in at $0.81, exceeding Wall Street estimates of $0.75 on expected revenue of $33.17 billion.
The company’s data center business, which includes AI chips critical for powering generative AI and other large-scale computing applications, was the star performer. Data center revenue surged 112% year-over-year to $30.8 billion, underscoring Nvidia’s dominance in this segment.
Why Did Nvidia’s Stock Decline?
Despite these stellar numbers, Nvidia’s stock fell 3% in after-hours trading. The decline wasn’t a reflection of poor performance but rather a response to the company’s cautious guidance for the upcoming quarter. Nvidia forecasted Q4 revenue of $37.5 billion, slightly above analysts’ expectations of $37.09 billion. However, investors were expecting more aggressive growth projections given Nvidia’s recent dominance in the AI space.
Nvidia $NVDA – Nooooooooooooooooooo pic.twitter.com/fareCklQYy
— Barchart (@Barchart) November 20, 2024
Market analysts suggest the muted guidance reflects Nvidia’s conservative approach, possibly influenced by supply constraints for its next-generation Blackwell AI chips. Alvin Nguyen, an analyst at Forrester Research, noted that the company may be tempering expectations to avoid overpromising.
Nvidia has cemented itself as a central player in the AI revolution. Its chips are indispensable for training and running AI models, powering technologies like large language models, recommendation engines, and autonomous systems. Over the past year, demand for Nvidia’s products has soared, driven by companies investing heavily in AI infrastructure.
“The world runs on Nvidia. The Intels of the world are going to continue to lose share and the Nvidias of the world will gain share, so if you want to be long AI, you have to own Nvidia.”
– Altimeter’s Brad Gerstner
— The AI Investor (@The_AI_Investor) November 21, 2024
CEO Jensen Huang aptly described the current era as “the age of AI in full steam,” emphasizing the company’s pivotal role in propelling the global shift toward AI-enabled computing. However, the rapid pace of AI adoption comes with challenges, including supply shortages and growing competition.
Challenges with Supply Constraints
A significant bottleneck for Nvidia is the supply of its advanced AI chips, particularly the Blackwell series, which are critical for next-generation AI applications. According to Colette Kress, Nvidia’s Chief Financial Officer, production of Blackwell chips will begin in Q4 of fiscal 2025 and ramp up further in fiscal 2026. However, demand is expected to exceed supply for several quarters, potentially limiting Nvidia’s ability to capitalize fully on the AI boom.
This supply-demand mismatch underscores the importance of strategic planning for Nvidia as it navigates the complexities of scaling production while maintaining quality. Early adopters of Blackwell chips, including industry leaders like OpenAI, are eagerly awaiting increased shipments, further emphasizing the pressure on Nvidia to deliver.
Nvidia’s dominance in the AI chip market is evident, but the broader technology sector is also witnessing a ripple effect. Analysts at Wedbush estimate that every dollar spent on Nvidia’s GPUs generates an $8 to $10 multiplier effect across the tech industry. This indicates that Nvidia’s growth not only benefits the company but also boosts investments and innovations in the wider technology ecosystem.
Despite Nvidia’s leading position, the market for AI chips is becoming increasingly competitive. Rivals like AMD and Intel are stepping up efforts to close the gap, while newer entrants are also looking to carve out a niche. This intensifying competition will test Nvidia’s ability to sustain its growth and market share.
Investors’ Concerns and Analyst Opinions
Investor concerns revolve primarily around the sustainability of Nvidia’s growth. Some fear that the company may struggle to maintain its extraordinary pace of revenue and profit expansion.
Others are wary of potential supply chain disruptions or challenges posed by geopolitical factors, especially given the critical role of semiconductor manufacturing in global trade.
Nevertheless, market analysts remain largely optimistic about Nvidia’s prospects. Several firms, including Mizuho, Wedbush, and Goldman Sachs, have raised their price targets for Nvidia’s stock following its Q3 results. The consensus is that Nvidia’s strong position in the AI chip market, combined with increasing demand, will drive growth in the long term.
Looking ahead, Nvidia has several opportunities and challenges to address. The company’s immediate priority will be scaling up the production of its Blackwell chips to meet skyrocketing demand. This involves not only expanding manufacturing capacity but also ensuring a steady supply of components, a task complicated by global semiconductor shortages.
Additionally, Nvidia will need to continue investing in research and development to maintain its technological edge. The AI chip market is evolving rapidly, and staying ahead of competitors requires constant innovation.
