The Results
NVDA (Nvidia) reported $96.2 billion in revenue and earnings per share of $2.22, both above expectations and above the whisper numbers. This was only the second positive post-earnings stock reaction in the last eight quarters. The stock rose 8%.
Crossing $100 billion in quarterly revenue is real and close - it is expected to cross that mark next quarter. The forward guidance drove the reaction more than the past results. Q3 guidance came in at $110.1 billion.
Guidance and the "Reset Floor"
The bigger news was the outlook for next fiscal year: about 70% revenue growth, versus prior estimates near 44-45%. This lifted the "floor" of expectations from earlier levels up to 70%. Jensen Huang said real demand is closer to 100%. So actual results over coming quarters will likely land between 70% and 100%.
NVDA is expected to beat every quarter, and likely left room in the guidance so it can push the number higher as supply conditions improve. Yesterday was a reset of the floor higher - short-term results were strong, but the raised next-year target was the key point.
The Market Reaction Timing
Right after the earnings release, the stock moved down. The move was small, it was red, and it held. By the next day the market embraced the report. Investors took time to digest the information, then responded positively once they judged the estimates to be accurate.
The initial negative reaction came from the margin guidance - gross margin guided down one point, from 75% to 74%. Then investors stepped back. One point of margin at NVDA's scale equals $8 billion. So while they gave up one percentage point, they added $8 billion in nominal real value. That one-point dip is impressive given it comes during the fastest product ramp the company has ever had, with Rubin.
The forward margin guidance has a reasonable explanation: the pass-through of higher memory pricing. Combined with the higher reset floor, that is what the market is now reacting to.
Margins and the Bears
The street focused on a 50 to 100 basis point margin move as significant. This was the bears grasping for something to grab onto after being short of arguments for a while. Many bearish narratives were put to bed by the call. A sustainable, ongoing margin decline would have drawn a very different reaction, but there was no sign of that.
NVDA has used its balance sheet to secure the supply it needs to drive more revenue. This is not really a competition between chipmakers. It is a battle for allocation of all the components needed to build a rack and sell that rack to an end customer. By using its balance sheet to lock up critical supply, NVDA can keep producing more GPU supply against strong GPU demand.
China
China is the wild card each quarter, and these results again exclude China. China is being fully discounted by the market. It is potential upside to results, but NVDA will not get much credit for it, because the back-and-forth regulatory environment makes it hard to view as durable. Easing export restrictions would be upside rather than a major factored-in risk.
