Chip manufacturer Nvidia failed to impress investors with its latest quarterly earnings report, despite exceeding Wall Street estimates and extending its streak of impressive growth.
The company’s data center division saw a significant year-over-year spike of 154 percent, generating $26.3 billion in revenue and accounting for 88 percent of total sales.
Nvidia, which has been at the forefront of the artificial intelligence revolution, reported that nearly $4 billion in revenue came from its networking products. Additionally, the company’s gaming revenue increased by 16 percent to $2.9 billion, supported by its provision of chips for Nintendo’s video game consoles.
With a net income of $16.6 billion ($0.67 per share), Nvidia witnessed substantial growth compared to the previous year’s $6.18 billion ($0.25 per share).
Despite the positive results, gross margins experienced a slight dip from 78.4 percent to 75.1 percent. Nvidia anticipates gross margins to be in the mid-70 percent range for the full year, falling short of the consensus estimate of 76.4 percent.
The company also announced its approval for a $50 billion stock buyback program. Last year, Nvidia confirmed a $25 billion share repurchase initiative.
Nvidia’s founder and CEO, Jensen Huang, expressed enthusiasm over the record revenues, attributing them to global data centers’ efforts to modernize computing with accelerated computing and generative AI technologies.
Attention is now focused on Nvidia’s next-generation AI chip, known as Blackwell. During the earnings call, it was revealed that sample Blackwell chips were shipped in the last quarter, following adjustments to enhance production efficiency.
Huang reassured shareholders and analysts that the change to the chip’s mask was complete, and production, in the true sense of shipping out, would commence in Q4.
Furthermore, Nvidia expects its current-generation chip, Hopper, to contribute to total shipments in the upcoming two quarters.
Investors already harbored concerns about the production and shipment of Blackwell chips ahead of Nvidia’s earnings report, as noted by John Belton, a portfolio manager at Gabelli Funds.
However, the earnings report failed to meet market expectations. In the extended trading session, Nvidia’s shares plummeted by as much as 8 percent, reaching approximately $116 per share. By the end of the August 28th trading session, the stock experienced a 2.1 percent decline, settling at $125.61.
Nevertheless, Nvidia’s stock is up approximately 160 percent year-to-date.
Following Nvidia’s share drop after the market close, the tech-heavy Nasdaq Composite Index recorded a decline of over 1 percent. In contrast, the blue-chip Dow Jones Industrial Average and the S&P 500 remained relatively stable.
Nvidia is considered one of the “Magnificent Seven” stocks, alongside Apple, Microsoft, Google parent Alphabet, Amazon.com, Meta Platforms, and Tesla Motors. Together, these stocks represent over a quarter of the U.S. stock market, with ten stocks accounting for a third of the S&P 500.
Ken Mahoney, CEO at Mahoney Asset Management, believes Nvidia’s performance holds significant importance for the market in the coming weeks.