NVIDIA's revenue growth rate will drop to the lowest in 7 quarters. Is the "AI faith" going to extinguish?

According to Zhitong Finance APP, NVIDIA (NVDA.US) predicted on Wednesday that its revenue growth rate will drop to the lowest level in seven quarters, failing to meet some investors' high expectations. The stock price of this artificial intelligence (AI) chip manufacturer fell by as much as 5% after the earnings announcement, although the decline quickly narrowed to 2.5% in after-hours trading.

Q3 Performance Remains Strong

Data shows that for the third quarter of fiscal year 2025 ending October 27, NVIDIA's total revenue surged 94% year-on-year to $35.1 billion; adjusted earnings per share were $0.81, compared to market expectations of $0.74. The company's core data center segment saw revenue increase by 112% year-on-year to an astonishing $30.8 billion, with a growth rate of 154% in the previous quarter.

Before the earnings announcement, investor expectations for NVIDIA were high, with the stock price rising more than 20% over the past two months and hitting an intraday record on Monday. The stock has nearly doubled this year and has increased more than ninefold over the past two years, reaching a market capitalization of $3.6 trillion.

NVIDIA is launching its powerful Blackwell series of AI chips, which will initially impact the company's gross margin but is expected to improve over time.

NVIDIA's Chief Financial Officer Colette Kress told analysts on a conference call on Wednesday that the new series of processors has been well received by customers, and the company's processor sales in the fourth quarter will exceed the initially expected billions of dollars.

Reports indicated that a flagship liquid-cooled server equipped with 72 new chips experienced overheating issues during preliminary testing. When asked about this report, NVIDIA CEO Jensen Huang stated that there are no issues, and customers such as Microsoft (MSFT.US), Oracle (ORCL.US), and CoreWeave are deploying these systems.

Huang stated, "Our Grace Blackwell liquid-cooled system has no problems. Engineering design is not easy at all because what we are doing is difficult, but our status is very good."

Kress indicated that the initial gross margin for the Blackwell series chips will be at the lower end of the 70% range, but as production increases, the gross margin will rise to around 75%.

Revenue Growth Slowdown Raises Concerns

NVIDIA expects fourth-quarter revenue to be $37.5 billion, with a fluctuation of 2%, better than the average forecast of $37.1 billion by Wall Street analysts, but below some analysts' predictions of $41 billion. According to NVIDIA's forecast, its fourth-quarter revenue growth rate will slow from 94% in the third quarter to about 69.5%.

Due to strong market demand for advanced AI chips, NVIDIA's growth rate remains impressive, but the revenue growth rate has noticeably slowed compared to previous quarters, when NVIDIA's sales often doubledRyan Detrick, Chief Market Strategist at Carson Group, stated: "Investors have become accustomed to this company's explosive performance, but achieving this is becoming increasingly difficult. This is still a very reliable report, but the fact is that when the bar is set so high, things become more challenging."

However, the slowdown in revenue growth masks the huge demand in the market for the company's dominant artificial intelligence chips.

Supply chain issues have made it harder for NVIDIA to announce revenue that exceeds expectations, and it is this explosive performance that has helped NVIDIA become Wall Street's darling. However, IDC analyst Brandon Hoff stated that if the company's profit margin exceeds 75%, growth could accelerate again.

One of the bottlenecks in NVIDIA's chip supply is the limited advanced process capacity of its partner TSMC.

Jensen Huang declined to comment on TSMC's specific production issues, but he also stated: "As we ramp up Blackwell capacity, we will continue to increase production lines and continuously improve output and shorten production cycles. All of this will enhance our output."