Nvidia (NVDA) Earnings
Nvidia (NVDA) posted a beat on both sales and earnings per share. Revenue came in at $96.2 billion, above the $92.3 billion expected. The key data center number hit $89.0 billion versus the $85.86 billion estimate. Gross margins landed at 75% for the quarter.
Guidance for the current (third) quarter is revenue of $108 billion, plus or minus 2%, above consensus. The full forecast range is $105.84 billion to $110.16 billion, against a street view of $105.15 billion, so even the low end tops the estimate. Vera Rubin is now in full production. Nvidia (NVDA) declared its next quarterly cash dividend of 25 cents a share, payable October 1.
Despite beats on sales and EPS, the stock went red, down about 2.8% right after the release, then recovered to down roughly 0.8%. The muted move likely reflects traders waiting to hear from CEO Jensen Huang, who said AI has reached its inflection point.
Revenue Breakdown
Compute and networking revenue was $88.3 billion, about $4 billion above expectations. A newly separated segment, AI cloud, industrial and enterprise revenue, came in at $40.31 billion. Hyperscale revenue was $48.71 billion, also about $4 billion better than expected. Edge computing revenue was $7.2 billion, above the $6.61 billion estimate.
For the current quarter, Nvidia (NVDA) guided gross margins to 73.5% to 74.5%, below this quarter's 75%. Operating expenses are guided at about $9 billion, slightly above the estimate. Purchase commitments jumped from $119 billion last quarter to $279 billion this quarter, a backlog no other company on earth matches.
Where the Concern Sits
The fundamentals are hard to criticize. A company that a few years ago was an obscure high-end gaming chip maker now generates a guided midpoint of $108 billion in revenue in a single quarter, and it keeps growing.
The one soft spot is the source of the beat. A bull case going in held that Nvidia (NVDA) is branching out beyond hyperscalers into ACE, a Neocloud-adjacent group of smaller, no-revenue names. That number, around $48 billion, looks impressive. But the hyperscaler revenue beat alone, about $5 billion, explains the entire revenue beat and then some. So on the bull case, they missed. For the most valuable company on the planet, priced for perfection, that slight disappointment may be all it takes to push the stock down.
Gross margins were a watch item; there had been worry about whether they would hold in the mid-70s. They came in at 75%, but the Q3 guide of 74% sits below the 75% the market wanted, raising the question of whether chip makers have hit peak margins if they are now guiding lower. Another drag: guidance topped analyst estimates but came in below buy-side consensus, a pattern that often sends Nvidia (NVDA) down even on strong numbers.
China
China was again left out of the report. Nvidia (NVDA) assumes zero China data center compute revenue in its guidance, so the China wild card remains. All the strong numbers are priced ex-China, making any China contribution upside on top. Huang has framed the growth as solid without China. Even after a quarter of rumors that Chinese companies got their hands on H200 chips, there has been no meaningful, measurable step forward on that front. China sits as a peripheral risk, not something that touches the core fundamentals.
The Bottleneck Risk
Much of the commitment backlog is tied up because of memory bottlenecks, which cap the near-term upside. These bottlenecks are outside Nvidia's (NVDA) control, and they hold the company back in a way that only allows for negative surprise. The bigger danger: if Nvidia (NVDA) cannot deliver on its commitments because it lacks the memory to build the chips, that gives competitors a runway. Buyers who cannot get the parts may turn to a rival product that is roughly the same or cheaper, or to other breakthroughs that make Nvidia's (NVDA) chips less useful over time. Nvidia (NVDA) has a once-in-a-lifetime opportunity and has benefited from it, but the supply limits are the real threat.
A relatively unchanged, muted move to the downside is no surprise, with more clarity to come once fuller commentary lands.
