Wall Street supports NVIDIA: Second-quarter results are very good, market expectations are too high!

After three months, it's Nvidia's moment again!

The overnight financial report shows that Nvidia's revenue in the second quarter of 2025 (second quarter of 2024) increased by 1.2 times year-on-year to $30 billion, reaching the upper end of the market's expected range ($29 billion to $30 billion). The revenue guidance for the third quarter is $32.5 billion, positioned in the middle of the expected range ($32 billion to $33 billion).

While the revenue maintained high growth, the guidance did not meet the most optimistic expectations on Wall Street. The delay in the delivery of the so-called "strongest chip in history," Blackwell, caused Nvidia's stock price to plummet by 8% in after-hours trading.

Following the release of the significant financial report, Wall Street analysts have made various summaries. To summarize Morgan Stanley's comments: Nvidia's performance in the second quarter is excellent, but it is far from enough. The market's expectations for this top student are too high.

Wall Street believes that there are currently two main concerns in the market: when Blackwell can become Nvidia's new growth engine, and whether the demand for AI chips can maintain high growth.

Regarding the first issue, Nvidia stated during the conference call that with Blackwell set to begin mass production in the fourth quarter, it is expected to generate billions of dollars in revenue, but did not confirm whether this revenue is incremental.

Citigroup predicts that Nvidia's stock price may fluctuate over the next two quarters before Blackwell drives annual sales and gross margins to a turning point. With rising production costs for Hopper and Blackwell, most analysts expect Nvidia's gross margin to continue to decline over the next few quarters.

Regarding the second issue, Jensen Huang remains optimistic about the future of AI applications, reiterating that global data centers represent a trillion-dollar opportunity. In Wall Street's reviews, Citigroup, Bank of America Merrill Lynch, Goldman Sachs, and Morgan Stanley all express optimism about future AI chip demand.

In contrast to the market's concerns, most Wall Street investment banks are bullish on Nvidia's growth prospects, with Citigroup, Bank of America Merrill Lynch, and Goldman Sachs maintaining their buy ratings on Nvidia. Bank of America Merrill Lynch believes Nvidia has unique growth opportunities and strong execution capabilities, Goldman Sachs holds a constructive view on Nvidia's data center prospects, and Barclays believes that key long-term issues have been resolved.

Below is a summary and review of Wall Street's analysis of Nvidia's Q2 financial report and conference call:

Morgan Stanley

Morgan Stanley summarizes Nvidia's financial report and the market's subsequent reaction as "the result of a bull market case, but the price action of a bear market." Morgan Stanley analyst Shawn Kim and others wrote: "NVIDIA's performance in the second quarter met expectations, with no doubts about demand, and the forward-looking guidance is positive." Overall, its performance is good, but "being good is not enough", "the market's expectations for NVIDIA are too high."

NVIDIA's revenue and guidance exceeded market expectations, yet the stock price experienced a sharp negative reaction. Morgan Stanley believes that this negativity may also indicate that investors are becoming more cautious, expecting a slowdown in the AI industry growth, especially after a long period of growth.

Bloomberg

Bloomberg analyst Ian King summarized:

NVIDIA's quarterly sales roughly matched analysts' expectations, but disappointed the most optimistic investors.

The biggest news is that NVIDIA acknowledged some issues with the upcoming Blackwell chip design.

Problems arose with Blackwell during production, requiring rework. However, this chip is still expected to bring in billions of dollars in revenue in the fourth quarter.

Analysts were hoping for more details on the launch of the Blackwell product line, but NVIDIA did not provide them, leading to a further significant drop in the stock price after hours during the conference call.

During the call, Jensen Huang remained optimistic about the future of AI applications and stated that the company is just beginning to retrofit global data centers with its equipment. This is a trillion-dollar opportunity.

After the call, Jensen Huang stated in an exclusive interview with Bloomberg TV that the supply will continue to improve every quarter, with a significant improvement in supply next year compared to 2024. He mentioned that overall, next year will be a great year.

Citi

Citi maintains a buy rating on NVIDIA with a target price of $150, based on a 35x P/E ratio of expected EPS for 2025. Analyst Atif Malik from the firm wrote:

Blackwell Chip: Management clearly stated that Blackwell is not expected to be launched in October, only samples. Regarding the mask defects in the production process of Blackwell, management mentioned that they delayed the shipping time by a few weeks due to mask defects. However, they still expect to have billions of dollars in revenue in the fourth quarter.

Due to ongoing supply chain constraints, they expect strong demand from cloud service providers (CSPs) and enterprises for the Hopper series chips.

Non-GAAP Gross Margin: Gross margins for the third and fourth quarters are expected to decline, mainly due to the increased proportion of higher-performance H200 chips and High Bandwidth Memory (HBM), which raised the production costs of GPUs.

As for next year, management expects the first-quarter gross margin to continue to decline (Citi estimates over 200 basis points), with Blackwell being a key factor, and the second-quarter gross margin will depend on the mass production of Blackwell. NVIDIA expects Blackwell's output to meet their expectations AI Network: NVIDIA sees the continued demand for Infiniband technology and plans to develop the next generation of Infiniband products. On the other hand, NVIDIA is increasing its Ethernet products by offering many features provided in their Infiniband products. In terms of enterprise demand, management believes there are several key driving factors: AI agents, Co-Pilot, and robots.

Citi expects that NVIDIA's stock price may fluctuate within a range over the next two quarters before Blackwell drives NVIDIA's annual sales and gross margin to a turning point. The Consumer Electronics Show (CES) held in January is the next major catalyst for NVIDIA's stock price.

Furthermore, as the enterprise AI demand takes off, AI adoption is still in the third/fourth stage, and the demand for data computing is expected to grow significantly by 10-20 times in the long term.

Bank of America Merrill Lynch

Bank of America Merrill Lynch reiterates its buy rating on NVIDIA, raising its EPS forecast for the fiscal years 2024/25 and 2025/26 by 9% to $2.81/$3.90 and increasing the target price from $150 to $165.

Analysts at Bank of America Merrill Lynch, including Vivek Arya, stated:

The stock price volatility of NVIDIA is likely due to the potential delay in Blackwell's delivery.

The institution also predicts that as Blackwell's costs rise, NVIDIA's gross margin will decrease to 75% in the third quarter and further drop to 73% in the fourth quarter.

Despite potential quarterly performance fluctuations, Bank of America Merrill Lynch remains optimistic about NVIDIA's long-term growth prospects, stating that NVIDIA has unique growth opportunities and strong execution capabilities due to its leading position in generative AI and over 80% market share.

The promotion and application of generative AI technology are still in the early stage (1-1.5 years), and the investment cycle is expected to last 3 to 4 years.

Importantly, the next generation of AI models will require 10-20 times the computing power for training (Blackwell's computing power is only 3-4 times higher than Hooper's).

AI deployment remains a crucial task for global cloud/enterprise customers, and NVIDIA provides the best all-in-one model.

Bank of America Merrill Lynch believes that the main factors driving NVIDIA's stock price increase include:

Strong demand for the Hooper series products, with higher expected demand in the second half of the year despite being launched two years ago, and Blackwell will contribute additional revenue.

Growth in sovereign customer demand, with order amounts increasing from high single-digit billion dollars to low double-digit billion dollars, diversified customer composition, with 45% being super-scale customers and 50% being internet service companies and enterprise customers.

Strong demand for AI Ethernet products, expected to become a product line worth billions of dollars.

Significant growth in pre-orders, with a year-on-year increase of 149% to $27.8 billion in the second quarter, demonstrating market confidence in NVIDIA's products Goldman Sachs

Goldman Sachs maintains a buy rating on NVIDIA with a target price of $135. Analysts at the firm, including Toshiya Hari, stated:

While we expect NVIDIA's gross margin for the fourth quarter of 2025 (first quarter of the fiscal year) to be below 70%, coupled with the company's continuously growing operating expense budget, this will drive a repricing of market expectations for gross margin in future fiscal years. However, we still maintain a constructive outlook on NVIDIA's data center revenue prospects, which include cloud services, consumer internet and enterprise customers, as well as training and inference workloads.

On the positive side, regarding Blackweill, management has confirmed that they have undergone a redesign without compromising on performance, and it may bring in billions of dollars in revenue in the fourth quarter, not including the ongoing growth in Hooper's revenue.

In our model, we have adjusted the 2026/27 fiscal year non-GAAP gross margin forecast downward by 200 basis points/210 basis points, but due to the increase in data center revenue, we have moderately raised the 2026/27 fiscal year non-GAAP earnings per share expectations by 3%/1%.

Barclays

Barclays maintains an overweight rating on NVIDIA with a target price of $145. Analysts at the firm, including Tom O'Malley, stated in their report:

Although the guidance did not meet the most optimistic market expectations, we believe that key long-term issues have been resolved, paving the way for a strong start to the 2025 fiscal year.

We understand that investors may nitpick this earnings report from a surface level perspective, but the key issues are trending positively.

While the guidance did not exceed consensus expectations by $2 billion as in the past, with lower gross margins and higher operating expenses, the more important aspect is that concerns over Blackwell's delay have been resolved, with expectations of bringing in billions of dollars in the fourth quarter and continuous growth from Hooper by the end of the year.

Overall, revenue evidently maintains continuity and stability, with the company even explicitly mentioning expectations for significant growth next year.

The market's reaction seems to be more related to changes in investment themes rather than the conservative guidance we believe is during the product transition period. We will increase holdings in NVIDIA when the stock price falls.