Track Hyper | NVIDIA's Q2 report explodes: Stock price unexpectedly plunges

Author: Zhou Yuan / Wall Street News

On August 29th, Beijing time, NVIDIA (NVDA) fell by 4.55% in pre-market trading, narrowing to a decline of 1.85%, with a midday report of about $123.36.

NVIDIA announced its outstanding performance for the second quarter of fiscal year 2024 in the early morning of August 29th Beijing time. However, after the financial report was released, NVIDIA's stock price plummeted rapidly, with a decline of up to 8%+ at one point, closing down 2.1% at $125.61 per share.

NVIDIA's second-quarter financial performance looks very impressive: in the second fiscal quarter of 2024, NVIDIA achieved revenue of $30 billion, a year-on-year increase of 122%, far exceeding analysts' expectations of $28.86 billion; net profit for the second quarter was $16.599 billion, a year-on-year increase of 168%, also higher than analysts' expectations of $14.64 billion.

Among them, the revenue of the Data Center (IDC) business was particularly outstanding, reaching $26.3 billion, a year-on-year increase of 154%, significantly surpassing analysts' expectations of $25.08 billion.

NVIDIA's management expects that its third-quarter operating income will increase by 80% year-on-year to $32.5 billion, higher than the average analyst forecast of $31.9 billion, but lower than the peak forecast of $37.9 billion.

This is considered to be the main reason for NVIDIA's stock price plummeting significantly after the company released such an excellent second-quarter report this year.

For a top student, even if it can still maintain a good performance growth rate in the future, if it cannot meet the most crazy expectations due to maintaining relative objectivity and rationality, the stock price may also move in the opposite direction.

Wall Street is not unanimous, as there are still many analysts who hold an optimistic view of NVIDIA. These analysts believe that the demand for AI has not weakened, and NVIDIA's strong product line is expected to continue to support its future earnings.

Currently, NVIDIA's most powerful product is the Blackwell series AI accelerator card. Previously, there were reports in the market that this accelerator card would be delayed in its launch due to insufficient packaging capacity at TSMC, the contract manufacturer, coupled with some technical issues at NVIDIA.

This time, NVIDIA admitted during the financial report conference call that they did encounter some problems and are currently making improvements to increase production yield. However, NVIDIA CEO Jensen Huang stated that the Blackwell series chips do not require "functional changes" and are expected to start mass production and shipment to customers in the fourth quarter. This is consistent with the information obtained by Wall Street News earlier that there has been some relief regarding the production issues of this accelerator card.

During the financial report conference call, Jensen Huang revealed that the market demand for the Blackwell product is "incredible," estimating that Blackwell's revenue in the fourth quarter will reach tens of billions of dollars.

It should be noted that the slower-than-expected progress in Blackwell's mass production is likely not the main reason for NVIDIA's stock price decline this time. Another possible reason is that the market has the view (or concern) that NVIDIA is too dependent on a few large customers, such as Google, Microsoft, and Meta, among others. If these customers reduce their capital expenditures, NVIDIA's revenue from them, which accounts for as much as 40%, will undoubtedly be significantly affected However, this kind of concern, at least for now, has no factual basis.

In the first half of this year, global top technology companies including Microsoft, Amazon, Meta, and Google's parent company Alphabet, continued to significantly increase capital expenditures to increase investments in artificial intelligence infrastructure such as data centers, totaling as much as $106 billion.

At the same time, this level of investment is not the end, and will continue in the future. These giants have publicly stated that in the next 18 months, the investment in IDC infrastructure for AI will further increase.

For example, Meta expects capital expenditures in 2024 to be around $37 billion to $40 billion, far exceeding the company's $28.1 billion scale in 2023. Most of Meta's capital expenditures are used for investments in AI infrastructure.

Microsoft's capital expenditures in 2024 reached $55.7 billion, a 75% increase from the previous year. This number accounts for about 23% of Microsoft's annual revenue, compared to an average of only 14% over the past 5 years.

In the second quarter of 2024, Microsoft's capital expenditures were $19 billion, a 78% year-on-year increase. The vast majority of this huge sum is related to cloud and AI businesses, with about half used for building and leasing data centers.

Microsoft CEO Nadella stated during the earnings conference call that they have captured "demand signals" to prove the rationale of these investments. Nadella pointed out that the capacity of intelligent clouds like Azure currently cannot meet the demand, so the company's capital expenditures for the new fiscal year will continue to increase quarter by quarter.

Google's capital expenditures in the second quarter of 2024 were $13.19 billion, a 10% increase from the previous quarter and a staggering 91.3% year-on-year increase.

Google expects that the capital expenditures for each quarter in 2024 will roughly remain at or above the level of the first quarter, around $12 billion. Despite concerns about pressure on Google's future profit margins in the market, Google still plans to continue to increase capital spending on AI infrastructure in the future, demonstrating its emphasis on AI technology development and long-term investment plans.

Currently, there are no hidden dangers in the market feedback for NVIDIA's existing products. Jensen Huang stated that as part of the artificial intelligence revolution, this year is just the beginning. NVIDIA's main products are still in short supply in the market, with strong demand for the Hopper series products (H100, H200) expected to continue to grow, and demand for the Blackwell series products (B200) to "further develop on this basis."

Tianfeng International analyst Ming-Chi Kuo believes that NVIDIA's stock price performance does not represent the future trend of the stock price in the coming months. "Blackwell will contribute revenue in the fourth quarter, helping to clarify investors' concerns about the deferred shipment of GB200, which is positive for the future trend of the stock price in the coming months."

If there is any indicator in NVIDIA's financial report this time that is not attractive enough, it may be the gross margin. NVIDIA's adjusted gross margin for the second quarter of 2024 was 75.7%, only 0.2 percentage points higher than the analysts' expected 75.5%. However, NVIDIA CFO Colette Kress does not see this as a problem, stating, "The company is on track to achieve an overall profit margin of around 75%."