Nvidia, a company that has become a symbol of technological progress and innovation, once again beat analysts' expectations with its results last quarter. However, despite the impressive financials, which reflect the company's strength in the artificial intelligence (AI) chip market, the company's stock fell 8% in the aftermarket following the results.

This paradox between the excellent results and the negative market reaction raises questions about the future developments and expectations associated with this technology icon.

Financial success despite expectations

Nvidia reported earnings per share of 68 cents, above the expected 64 cents. Revenue came in at $30.04 billion, which also topped analysts' estimates of $28.7 billion. Those numbers underscore strong growth for the company, which is benefiting from huge demand for chips designed for AI and data centers. The company's management also raised its revenue estimates for the next quarter, expecting revenue of $32.5 billion, which would represent an 80% year-over-year increase. For analysts and investors, however, that figure was not enough, weighing on $NVDA+4.0%stock .

While Nvidia beat Wall Street's expectations for top-line and bottom-line results, investors seemed disappointed that it didn't beat by a wider margin. And rumors of possible delays to the company's latest artificial intelligence chips, called Blackwell, added to concerns leading up to the earnings report, though executives said during Wednesday night's earnings call that Nvidia still expects to start profiting from Blackwell this fiscal year.

Nvidia

NVDA

$117.87 $4.50 +3.97%

Capital Structure

Market Cap

2.8T

Enterpr. Val.

2.8T

Valuation

P/E

53.0

P/S

29.1

Open $115.89

Day range $113.22 - $117.70

52 week range $39.23 - $140.76

Data Centers

In particular, the company's data center segment, which includes processors designed for AI, is driving that growth. Revenue in this segment grew a whopping 154% to $26.3 billion, accounting for 88% of Nvidia's total revenue. These results are key to the continued development of AI applications, such as OpenAI's ChatGPT, that rely on Nvidia's computing power.

AI dominance and the transition to the next generation of chips

Nvidia has become a key player in AI, with its H100 and H200 chips used in a wide range of generative AI applications. The company recently announced that it has already shipped samples of its next-generation AI chips, dubbed Blackwell, and expects to make several billion dollars from these chips in the coming quarter. These chips are seen as the future of AI development and their launch is key to maintaining Nvidia's leadership position in this sector.

Although the supply of existing Hopper chips has been increased, demand for the new generation of Blackwell chips remains higher than supply. Nvidia CEO Jensen Huang stressed that demand for these chips is huge and this trend is expected to continue in the coming year. Huang also mentioned that the new AI generation will require up to 40 times more computing power, which only adds to the need for innovation and development in the chip space.

Challenges

Despite the successes, Nvidia faces several challenges. The company's gross margin fell to 75.1% from 78.4% previously, which may be a warning sign for some investors. Although the margin is still higher than last year's 70.1%, analysts were expecting a full-year margin of around 76.4%. This decline may be partly due to higher costs associated with the production of the new generation of chips, but also to changes in the market.

Another challenge for the company is its reliance on a limited number of large customers such as Microsoft, Alphabet, Meta and Tesla, which account for a significant portion of its revenue. This dependence on a few key partners can increase the stock's volatility, which has already been evident in its recent nearly 30% drop in value after reaching an all-time high in June. Despite this decline, however, Nvidia has recovered most of its losses, indicating investor confidence in the company's ability to continue to grow.

Conclusion.

Nvidia remains a leader in AI, and its financial results demonstrate that it is managing to keep pace with rising market expectations. Still, investing in the company carries some risks, particularly in the context of high stock volatility and dependence on a few key customers. Although Nvidia offers significant growth potential, investors should be prepared for the possibility of short-term fluctuations and closely monitor how the company manages the challenges of producing next-generation chips and maintaining its dominant market position.

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