Nvidia, the crown jewel of the AI revolution, failed to meet investors’ high expectations on Wednesday night as its third-quarter revenue forecast fell short due to a snag in the production of its new Blackwell chip. In after-hours trading, the chipmaker’s shares dropped more than 6 percent.
Nvidia’s earnings figures are not only critical for the company itself but also serve as a gauge for the broader AI and technology sectors. Given the company’s substantial influence on market sentiment and valuations, Nvidia’s financial results have taken on near-macroeconomic significance.
Nvidia’s pivotal role in the AI revolution has positioned it at the center of global markets. Increasing demand for AI processors has made the company a key player, with its GPUs widely used for training AI models and supporting data centers.
Nvidia is a major holding in the portfolios of many investment funds, including those of InsingerGilissen in the Netherlands and large European asset managers like Amundi and Baillie Gifford. Morningstar data shows that major technology funds allocate between 20% and 32% of their holdings to Nvidia, underscoring its dominance in both passive and active investment strategies.
Nvidia dominates tech funds
Source: Morningstar Direct.
Nvidia reported second-quarter adjusted earnings of 68 cents per share on revenue of $30.0 billion, beating analysts’ estimates. Expectations surrounding Nvidia’s Q2 results were high, with quarterly revenue anticipated at $28.7 billion and earnings per share forecasted to rise to 65 cents. However, the so-called ‘whisper numbers,’ or informal expectations, were even higher, around 71 cents.
“Here’s the problem: the size of the beat this time was much smaller than we’re used to,” Ryan Detrick, chief market strategist at Carson Group, told Reuters. “Even future guidance was raised, but again, not by the amount we’ve seen in previous quarters. This is still a great company growing its sales by 122%, but it seems the bar was set just a little too high this earnings season,” Detrick said.
Investors unequipped to handle exponential growth
Jeroen Blokland, manager of the Blokland Smart Multi-Asset Fund, called it “another great quarter from Nvidia.” He added, “Yet the stock is down. This is likely because investors are unequipped to grasp the concept of exponential growth. First, they are way too conservative, which they then try to compensate for by penciling in unrealistic expectations.”
Jensen Huang, founder and CEO of Nvidia, emphasized during a conference call with investors that there are two simultaneous shifts underway, with computing power increasing sharply and AI becoming more widely applicable through the expansion of data centers. “There are two platform transitions going on at the same time,” Huang said. “Accelerated computing speeds up applications and allows computing at a much larger scale, with lower costs and lower energy consumption.”
Tip of the iceberg
“What we see are applications like chatbots, image generators, and coding — at Nvidia, we use generative AI for coding — and these are just the tip of the iceberg,” Huang continued. “Below the surface, we are moving from GPUs to generative AI, with applications at scale.”
Further growth for Nvidia is tied to the launch of the new Blackwell chip, which will enable new AI applications. In Wednesday’s investor call, Huang confirmed that the company had to make adjustments to the mask for this chip, causing delivery delays. However, Huang stressed that the first Blackwell chips will be shipped to customers in the fourth quarter. “Blackwell will start shipping out in billions of dollars by the end of this year,” Huang said.