Demand for Nvidia's AI chips is still high, but investors are concerned about the company's sluggish sales growth

Nvidia has projected its slowest revenue growth in seven quarters, falling short of the high expectations set by investors who have propelled it to become the world's most valuable semiconductor company.

Following its earnings report, shares of the Santa Clara-based firm dropped 5% in after-hours trading but later recovered slightly to a 1.5% loss. Earlier in the regular session, the stock had closed down 0.8%. Despite this, Nvidia's shares have soared over 20% in the past two months, reaching a record intraday high on Monday. Year-to-date, the stock has nearly quadrupled, achieving a ninefold increase over the past two years.

The company is currently rolling out its next-generation Blackwell AI chips, which are initially expected to compress gross margins but promise better profitability as production scales. Nvidia's CFO, Colette Kress, stated that sales of the new chips in the fourth quarter will exceed earlier projections, thanks to robust demand from customers.

Addressing reports of overheating issues with a flagship server featuring 72 of the new chips, CEO Jensen Huang dismissed these claims, affirming that companies like Microsoft, Oracle, and CoreWeave are already deploying the systems without problems. “There are no issues with our Grace Blackwell liquid-cooled systems,” Huang told Reuters, emphasizing the engineering challenges but assuring their readiness.

Kress also noted that the Blackwell chips would initially offer gross margins in the low 70% range but are expected to improve to mid-70% as production ramps up. For the fourth quarter, Nvidia forecasted revenue of $37.5 billion, slightly above analysts' estimates of $37.09 billion, representing a 69.5% growth rate—a slowdown compared to the previous quarter's 94%.

Huang highlighted the growing demand for Nvidia’s Hopper and Blackwell AI chips, which power generative AI systems. He described the "age of AI" as a transformative era driving demand for Nvidia's computing solutions. However, the company's growth is constrained by supply chain challenges, particularly with its manufacturing partner TSMC, which faces limited capacity for advanced chip production techniques.

Analysts expressed mixed reactions to Nvidia’s results. While some acknowledged the continued strength in demand, they noted that the company's ability to deliver significant revenue beats is becoming increasingly challenging. “The bar is incredibly high, making it harder to exceed expectations,” said Ryan Detrick, Chief Market Strategist at Carson Group.

Despite these hurdles, Nvidia’s data center segment—its primary revenue driver—saw sales surge 112% to $30.77 billion in the third quarter, albeit slower than the 154% growth recorded in the prior quarter. The strong performance is driven by cloud companies expanding AI-capable data centers.

Nvidia also revealed that it resolved a design issue with its Blackwell chips by modifying TSMC's manufacturing blueprints. While Huang declined to discuss specific production challenges, he noted ongoing efforts to expand production lines, enhance yields, and shorten production cycles.

The company posted third-quarter adjusted earnings of $0.81 per share, surpassing expectations of $0.75, but reported an adjusted gross margin decline to 75%. Analysts remain cautious about potential supply chain disruptions, which could continue to affect Nvidia’s ability to meet surging demand.

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.