NVIDIA experienced a huge shake-up after hours, with Q3 revenue guidance falling short of the highest expectations, expecting Blackwell chip to bring in billions in Q4 | Financial Report Insights

AI chip giant NVIDIA's sales revenue for the past quarter continued to double, exceeding expectations. However, the guidance for this quarter did not meet the most optimistic expectations on Wall Street. NVIDIA is optimistic that the advanced chip Blackwell architecture chip, which was previously rumored to be delayed, will bring in billions of dollars in revenue in the last quarter of this fiscal year. However, during the earnings call, NVIDIA executives did not address whether this billion-dollar revenue is incremental.

After the US stock market closed on Wednesday, August 28th, NVIDIA announced the financial data for the second quarter of the 2025 fiscal year ending on July 28, 2024, as well as the performance guidance for the third quarter.

1) Key Financial Data:

Revenue: Revenue for the second quarter was $30 billion, a year-on-year increase of 122%. Analysts expected $28.86 billion, while NVIDIA's own guidance was $27.44 billion to $28.56 billion, representing a 262% increase year-on-year from the previous quarter.

EPS: Non-GAAP adjusted earnings per share (EPS) for the second quarter was $0.68, a 152% increase year-on-year. Analysts expected $0.64, while the previous quarter saw a 461% increase year-on-year.

Gross Margin: The adjusted gross margin for the second quarter was 75.7%, up 4.5 percentage points year-on-year but down 3.2 percentage points quarter-on-quarter. Analysts expected 75.5%, while NVIDIA's guidance was 75% to 76%. The gross margin for the previous quarter was 78.9%, up 12.1 percentage points year-on-year.

2) Segment Data:

Data Center: Revenue from the data center segment in the second quarter was $26.3 billion, a 154% increase year-on-year. Analysts expected $25.1 billion, while the previous quarter saw a 427% increase year-on-year.

Gaming and AI PC: Revenue from the gaming and AI PC business in the second quarter was $2.9 billion, a 16% increase year-on-year. The previous quarter saw an 18% increase year-on-year.

Professional Visualization: Revenue from the professional visualization segment in the second quarter was $454 million, a 20% increase year-on-year. The previous quarter saw a 45% increase year-on-year.

Automotive and Robotics: Revenue from the automotive and robotics business in the second quarter was $346 million, a 37% increase year-on-year. The previous quarter saw an 11% increase year-on-year.

3) Performance Guidance:

Revenue: Revenue for the third quarter is expected to be $32.5 billion, with a fluctuation of 2%, ranging from $31.85 billion to $33.15 billion. The average analyst expectation is $31.9 billion, with the highest expectation at $37.9 billion

Gross Margin: The non-GAAP gross margin for the third quarter is expected to be 75%, with a fluctuation range of 50 basis points, i.e., 74.5% to 75.5%.

4) Dividends and Buybacks

In the first half of the 2025 fiscal year, the company returned $15.4 billion to shareholders in the form of stock buybacks and cash dividends. As of the end of the second quarter, the remaining stock repurchase authorization amount is $7.5 billion.

On August 26, 2024, the board approved an additional $50 billion stock repurchase authorization with no expiration date.

After the financial report was released, NVIDIA's stock price fell by 2.1% on Wednesday, with significant post-market fluctuations. It initially rose by over 2%, then plummeted, with a post-market decline of over 7% at one point, later narrowing to less than a 2% drop, and then widening again to over an 8% decline. Due to NVIDIA's significant post-market drop, Nasdaq 100 stock index futures fell by over 1% after hours.

Third Quarter Revenue Guidance Slows to Double Digits, Wall Street Optimistic Despite Still Expecting Triple-Digit Growth

From the financial data, NVIDIA continued to surpass Wall Street expectations in the second quarter, achieving a record single-quarter revenue, exceeding the entire guidance range, and maintaining triple-digit growth for the fifth consecutive quarter. The data center business, benefiting from the AI boom, saw a significant slowdown in growth compared to the previous quarter but still maintained triple-digit growth.

Analysts believe that the most significant impact on NVIDIA's stock price may be the mixed third-quarter guidance.

Based on the guidance range, NVIDIA is expected to grow by 75.8% to 82.9% year-on-year in the third quarter. JPMorgan Chase expects revenue to be at the mid-point of the range at $32.5 billion, an 81.8% increase, while the highest revenue expected by analysts implies a growth of 109.2%. In other words, NVIDIA expects revenue growth in the third quarter to slow to double digits for the first time in the last six quarters, while Wall Street's optimistic expectations still maintain triple-digit growth.

Some commentators suggest that NVIDIA may have anticipated market disappointment with some underwhelming performance expectations, hence the announcement of a new $50 billion buyback plan to try to appease investors. However, at least so far, the large-scale buyback has not reversed the downward trend in stock price, and investor sentiment remains affected.

Jensen Huang States Strong Demand for Hopper, External Expectations for Blackwell "Unbelievable", Significant Liquid Cooling Demand

Earlier this month, there were reports that due to design flaws, the most advanced AI chip in the Blackwell series would be delayed by three months or more, with a large shipment of Blackwell chips possibly delayed until the first quarter of next year. NVIDIA later responded that the strong demand for the Hopper chip and the production schedule for the Blackwell chip remain unchanged.

A research report by Morgan Stanley last weekend predicted that NVIDIA's second-quarter report is likely to exceed expectations. Compared to this quarter's revenue guidance, what the market really should focus on is whether NVIDIA can alleviate investors' concerns about the potential delay in the shipment of Blackwell architecture.

In the announcement of this financial report, NVIDIA CEO Jensen Huang specifically mentioned the high expectations for the Blackwell chip when commenting on the second-quarter performance, and he also mentioned the strong demand for Hopper.

Jensen Huang said:

"The demand for Hopper chips remains strong, and the expectations for Blackwell chips are incredible. As global data centers go all out to modernize the entire computing stack through accelerated computing and generative AI, NVIDIA has achieved record revenue."

During the earnings conference call, Jensen Huang said that the demand for Hopper and Blackwell chips is incredible. In the future, until the shipment of Blackwell and the ability to install during this period, a large amount of demand will be met.

When asked about the Blackwell chip and its demand for liquid cooling, and whether it will slow down applications, Jensen Huang stated that the next trillion-dollar infrastructure will be unique. Blackwell will appear in many forms, some of which do not require liquid cooling. However, the demand for liquid cooling is significant and requires a large amount of engineering. He is quite confident that this will happen.

CFO acknowledges improvements to Blackwell and does not answer whether the multi-billion-dollar revenue in the fourth quarter is incremental

NVIDIA's Chief Financial Officer (CFO) Colette Kress acknowledged the previous issues with the Blackwell chip when commenting on the performance, stating that improvements have been made, hinting at readiness for shipment, and expecting that such chips will bring in revenue of several billion dollars for the company in the fourth quarter. She said:

"We delivered samples of the Blackwell architecture to customers in the second quarter. To improve production yield, we made changes to the Blackwell GPU mask. The production ramp for Blackwell is set to begin in the fourth quarter and continue into the 2026 fiscal year. In the fourth quarter, we expect Blackwell to generate revenue in the billions of dollars. The demand for Hopper is strong, and we expect shipment volumes to increase in the second half of the 2025 fiscal year."

During the earnings conference call, a Bernstein analyst asked about Blackwell revenue and gross margin. Kress did not answer whether the multi-billion-dollar revenue from Blackwell in the fourth quarter would be incremental.

Kress mentioned that the existing product line Hopper will continue to grow, and Blackwell will provide additional revenue on top of this. The company is moving towards an overall gross margin target of around 75%.

Kress also mentioned the Chinese market, stating that competition in this market remains fierce, and NVIDIA's share of data center revenue in China is still below previous levels. She noted that revenue from data centers in China increased quarter-on-quarter in the second quarter, and China is an important market contributing to data center revenue, although it is lower than before