Nvidia Surpasses Expectations, Leaving Wall Street in Awe
After a tumultuous quarter filled with high hopes, Nvidia, a titan in the realm of chip manufacturers and the second-largest U.S. corporation, managed to outshine Wall Street’s projections. The revenue reached an astounding $30.05 billion, a remarkable leap from $13.51 billion last year, far surpassing the $28.86 billion forecast. Particularly noteworthy was the data center revenue, skyrocketing to $26.3 billion from $10.32 billion in the same quarter of the previous year. Furthermore, the esteemed Zacks Rank #3 (Hold) company reported an adjusted EPS of $0.68, triumphing over Zacks Consensus Estimates for the seventh consecutive quarter.
Per tradition, Nvidia painted a bright future ahead, elevating its guidance once again. However, the quarter presented a mixed bag due to unforeseen delays in the launch of the company’s latest chip, Blackwell, and a dip in profit margins. Read on to uncover further details.
Unveiling the Blackwell Chip’s Troubles
Following Nvidia’s earnings release, Gene Munster, the Managing Partner at Deepwater Asset Management, provided an insightful take on the situation:
“NVDA first take: the guidance is much better than investors’ first take (stock down). The company guided revenue up ~3% in October, which includes the negative impact of what appears to be a 2–3-month Blackwell delay. In other words, if there was no delay, the guidance would have been measurably higher. Keep in mind the October quarter will also face strong ‘Osborne Effect’ headwinds as some customers delay purchasing in anticipation of Blackwell.”
“The Osborne Effect” encapsulates the decline in sales triggered by a premature product announcement, as customers postpone purchases, awaiting the latest offering. Coined in the 1980s, the term originated from Osborne Computer Corporation’s bankruptcy caused by diminished sales following the revelation of a superior model.
Despite Nvidia being light-years away from a similar fate, the setback in Blackwell, the company’s cutting-edge chip, intended for a 2024 launch, was prompted by issues with its supplier, Taiwan Semiconductor (TSM). Highlighted in my Nvidia EPS preview, Blackwell’s status was deemed a make-or-break element for this quarter. Fortunately, the management eased concerns, confirming, “We shipped customer samples of our Blackwell architecture in the second quarter. We executed a change to the Blackwell GPU mask to improve production yield. Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal 2026. In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue. Hopper demand is strong, and shipments are expected to increase in the second half of fiscal 2025.”
Nvidia Initiates a $50 Billion Buyback Initiative
Nvidia is embarking on a significant investment initiative by announcing a $50 billion buyback program.
Share repurchases, akin to those witnessed in Apple (AAPL), are viewed favorably because they reduce outstanding shares, enhance EPS, and reaffirm management’s faith in the company’s future.
Nvidia’s Net Profit Margin Sees a Downturn
Nvidia experienced a decline in net profit margins from a record 57% in Q1 to 55%, marking its first margin decrease in two years. The NVDA CFO elucidated, “Q2 gross margins were negatively impacted by inventory provisions for low-yielding Blackwell material and may continue to be impacted in the future.”
This margin stagnation stands out as a primary concern for NVDA’s future trajectory. Evidently, the demand persists at an insatiable pace. However, a sustained profitability deceleration can somewhat dampen the company’s stock fervor. Moreover, the rising competition from Advanced Micro Devices (AMD) poses a potential threat to Nvidia’s dominance. Nonetheless, it’s essential to remember that a single quarter’s performance does not formulate a trend.
Concluding Thoughts
Nvidia once again defied Wall Street’s predictions and delivered a promising outlook. While the hiccup in the highly-anticipated Blackwell chip unveiling appears minor, investors must vigilantly monitor profit margins in the imminent quarters ahead.
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