Nvidia, the AI chip giant, saw its sales revenue double in the past quarter, exceeding market expectations, but its guidance for the current quarter failed to meet the most optimistic expectations on Wall Street. For the much-anticipated Blackwell architecture chips, Nvidia optimistically anticipates that they will bring in billions of dollars in revenue in the last quarter of this fiscal year. However, during the earnings call, Nvidia executives did not answer whether this billions of dollars in revenue is new income.

On Wednesday, August 28, Eastern Time, after the US stock market closed, Nvidia announced its financial data for the second quarter (hereinafter referred to as Q2) of the fiscal year 2025, which ended on July 28, 2024, as well as its performance guidance for the third quarter (hereinafter referred to as Q3).

1) Key financial data:

- Total revenue: Q2 revenue was $30 billion, a year-over-year increase of 122%, with analysts expecting $28.86 billion, and Nvidia's own guidance ranging from $27.44 billion to $28.56 billion. The previous quarter saw a year-over-year increase of 262%.

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- EPS: In Q2, the adjusted earnings per share (EPS) under non-GAAP measures was $0.68, a year-over-year increase of 152%, with analysts expecting $0.64. The previous quarter saw a year-over-year increase of 461%.

- Gross margin: The adjusted gross margin for Q2 was 75.7%, up 4.5 percentage points year-over-year and down 3.2 percentage points sequentially. Analysts expected 75.5%, with Nvidia's guidance ranging from 75% to 76%. The previous quarter was 78.9%, up 12.1 percentage points year-over-year.

2) Business segment data:

- Data centers: Data center revenue in Q2 was $26.3 billion, a year-over-year increase of 154%, with analysts expecting $25.1 billion. The previous quarter saw a year-over-year increase of 427%.

- Gaming and AI PCs: Gaming and AI PC business revenue in Q2 was $2.9 billion, a year-over-year increase of 16%, with the previous quarter seeing a year-over-year increase of 18%.

- Professional visualization: Professional visualization revenue in Q2 was $454 million, a year-over-year increase of 20%, with the previous quarter seeing a year-over-year increase of 45%.Automobiles and Robotics: In Q2, the revenue from the automobile and robotics business reached $346 million, a year-over-year increase of 37%, compared to a 11% increase in the previous quarter.

3) Performance Guidance:

Revenue: The revenue for Q3 is expected to be $32.5 billion, with a fluctuation of 2%, ranging from $31.85 billion to $33.15 billion. The average analyst expectation is $31.9 billion, with the highest expectation at $37.9 billion.

Gross Margin: The non-GAAP gross margin for Q3 is expected to be 75%, with a fluctuation of 50 basis points, ranging from 74.5% to 75.5%.

4) Dividends and Share Repurchases

In the first half of the fiscal year 2025, the company returned $15.4 billion to shareholders in the form of share repurchases and cash dividends. As of the end of Q2, the remaining authorization amount for stock repurchases was $7.5 billion.

On August 26, 2024, the board of directors approved an additional $50 billion authorization for stock repurchases, with no expiration date.

After the financial results were announced, Nvidia's stock, which closed down 2.1% on Wednesday, experienced significant after-hours volatility. It initially rose by more than 2%, then plummeted and turned negative, with the after-hours drop once exceeding 7%. The decline was later halved to less than 2%, only to widen again, reaching a drop of over 8%. The sharp after-hours decline of Nvidia's stock also led to a more than 1% drop in the Nasdaq 100 futures after the close.

Q3 revenue guidance slows to double digits, while Wall Street's optimistic expectations remain in triple digits.

Looking at the financial data, Nvidia continued to outperform Wall Street expectations in Q2, with revenue setting a new single-quarter record, higher than the company's entire guidance range, marking the fifth consecutive quarter of triple-digit growth. Among this, the data center business, which benefited from the AI boom, saw a significant slowdown in growth compared to the previous quarter, but still maintained a triple-digit growth rate.Comments suggest that the most significant influence on NVIDIA's stock price may be the mixed third-quarter guidance. Based on the guidance range, NVIDIA anticipates a year-over-year growth of 75.8% to 82.9% for the third quarter. J.P. Morgan estimates revenue at the mid-point of the range, $32.5 billion, with an 81.8% increase, while the highest revenue expectation from analysts implies a growth of 109.2%. This means that NVIDIA expects the revenue growth for the third quarter to slow down to a double-digit increase for the first time in the last six quarters, while Wall Street's optimistic expectations still maintain triple-digit growth.

Some comments indicate that NVIDIA may have anticipated the market's dissatisfaction with the somewhat disappointing performance expectations, hence the announcement of a new $5 billion share repurchase plan, attempting to appease investors. However, at least up to now, the large-scale repurchase has not been able to reverse the stock price decline, and investors' sentiments are still affected.

Jensen Huang stated strong demand for Hopper and "unbelievable" expectations for Blackwell, with considerable demand for liquid cooling.

Reports earlier this month suggested that due to design flaws, the most advanced AI chip in the Blackwell series would be delayed by three months or more, and the mass shipment of Blackwell could be postponed until the first quarter of next year. Subsequently, NVIDIA responded that the strong demand for Hopper chips and the production plan for Blackwell chips have not changed.

A research report from Morgan Stanley over the weekend estimated that there is a high probability that NVIDIA's second-quarter report will exceed expectations. Compared to the revenue guidance for this quarter, what the market should really focus on is whether NVIDIA can alleviate investors' concerns about the potential delay in the shipment of the Blackwell architecture.

In the announcement of the financial report, NVIDIA CEO Jensen Huang specifically mentioned the extremely high expectations for the Blackwell chip when commenting on the second-quarter performance. He also mentioned the strong demand for Hopper.

Jensen Huang said:

"The demand for Hopper (chips) remains strong, and the anticipation for Blackwell (chips) is unbelievable. As global data centers go all out to modernize the entire computing stack through accelerated computing and generative AI, NVIDIA has achieved a record revenue."

During the earnings call, Jensen Huang stated that the demand for both Hopper and Blackwell is unbelievable. Until the period when Blackwell can be shipped and installed, a significant amount of demand will be met.When asked about the Blackwell chip and its demand for liquid cooling, whether it would slow down the speed of applications, Huang Renxun said that the next trillion-dollar infrastructure will be quite different. Blackwell will appear in many forms, some of which do not require liquid cooling. However, the demand for liquid cooling is considerable, requiring a lot of engineering. He is quite confident that this will happen.

The CFO said that Blackwell has been improved and did not answer whether the hundreds of millions of dollars in revenue in the fourth quarter is incremental. China is an important market for data center revenue.

NVIDIA Chief Financial Officer (CFO) Colette Kress admitted that there were problems with the Blackwell chip in the past when commenting on the performance, saying that improvements have been made, implying that it is ready to be shipped, and expects this type of chip to bring the company hundreds of millions of dollars in revenue in the fourth fiscal quarter. She said:

"We delivered samples of the Blackwell architecture to customers in the second quarter. To improve production yield, we made changes to the Blackwell GPU mask. The production ramp-up plan for Blackwell will start in the fourth quarter and continue through fiscal year 2026. In the fourth quarter, we expect Blackwell to achieve hundreds of millions of dollars in revenue. Hopper demand is strong, and shipments are expected to increase in the second half of fiscal year 2025."

At the performance conference call, a Bernstein analyst asked questions about Blackwell's revenue and gross margin. Kress did not answer whether the hundreds of millions of dollars in revenue from Blackwell in the fourth quarter is incremental.

Kress said that the existing product line Hopper will continue to grow, and Blackwell will be an additional revenue on this basis. The company is moving towards an overall gross margin target of about 75%.

Kress also mentioned the Chinese market, saying that the competition in this market is still fierce, and NVIDIA's share of data center revenue in China is still below the previous level. She said that the data center revenue in China increased quarter-on-quarter in the second quarter, and China is an important market for data center revenue, but below the previous level.