Alright, let’s get straight to it, because last night all of Wall Street had its eyes on one thing and one thing only: Nvidia’s quarterly results. And the company delivered everything investors were looking for. Revenue above expectations. Earnings above expectations. Guidance for the next quarter… once again above expectations.
And then the stock fell, at least for a while.
Yes, you read that correctly. The world’s most valuable company announced record numbers across every line of its financial results, and some investors still weren’t as impressed as you might expect.
Let’s break it all down.
Let’s start with the basics. Quarterly revenue reached $96.22 billion. Analysts were expecting around $92 billion. And to understand just how massive that is, Nvidia generated $46.7 billion during the same quarter last year. In other words, the company more than doubled its revenue in just one year, representing growth of 106%.
Net income? It rose from $24.76 billion last year to $53.95 billion. Earnings per share came in at $2.22, compared with market expectations of $2.10.
But the real beast is the data center business. That segment alone generated $89 billion, up 117% year over year. And here is the interesting part: data centers now account for 92% of the company’s total revenue. Essentially, everything else is peanuts in comparison.
And so you don’t think all of this exists only on paper, the company generated $21.34 billion in free cash flow during the quarter. It returned $26 billion to shareholders through buybacks and dividends. And it still has another $99 billion authorized for future buybacks. Oh, and it is paying a dividend of 25 cents per share on October 1.
And this is where things get even more interesting. For the current quarter, Nvidia expects revenue of $108 billion, plus or minus 2%, while the market was expecting around $104.6 billion.
And pay attention to something very important. That forecast does not include a single dollar of revenue from China. Zero.
"Why, Christos?" you might be wondering. Because Nvidia is essentially locked out of the world’s largest semiconductor market. During the past quarter, sales of older Hopper chips in China accounted for less than 1% of data center revenue. That might sound insignificant. But it is a change, because the previous quarter the number was literally zero.
Jensen Huang himself put it clearly: "Artificial intelligence has reached its tipping point. It is doing useful work. Now, compute is revenue." And he explained that last year, growth was being driven by just one factor. Today, there are multiple growth drivers operating at the same time.
The past quarter was carried by Blackwell Ultra. The next one belongs to Vera Rubin, which has already entered full production.
Everything sounds great. So why did the stock fall by more than 1% immediately after the announcement? Why did some investors seem disappointed? There are three main reasons.
First reason: profit margins. During the past quarter, they stood at 75%, an extraordinary number for a hardware company. But for the next quarter, Nvidia is forecasting 74%. The market was expecting margins to remain closer to 75%. The reason is the cost of components, especially memory, which has surged because of a global shortage. So much so that the company has already announced price increases for its customers.
Second reason: the bar has become incredibly high. Nvidia has beaten expectations for 15 consecutive quarters. And yet, the stock has fallen after five of its last six earnings announcements. Some particularly bullish estimates were even talking about $138 billion. When expectations reach those levels, simply doing "very well" is no longer enough.
Third reason: competition. AMD, Google and others are getting closer. And on the very same day, OpenAI announced that its own chip, Jalapeño, outperformed Blackwell systems in two areas during its testing.
Of course, the stock later moved back into positive territory, so we will have to see how it performs today.
And here comes the part that worries investors the most. Nvidia’s future commitments to suppliers surged from $119 billion to $279 billion in just one quarter, mainly to secure memory supply.
But that is not all. The company admitted that many of its customers are "growing faster than their balance sheets can support." So what does Nvidia do? It steps in as the guarantor itself. $3.5 billion for AI cloud companies. $105 billion for SB Energy and data center leases that will later be transferred to third parties.
Morgan Stanley called it "balance sheet-as-a-service." Bank of America estimates that the company’s total exposure could eventually reach $500 billion.
Now you might ask... is that necessarily bad? Not necessarily. If growth continues, Nvidia may never have to pay a single dollar. But there are concerns about what is known as "circular financing." In other words, is Nvidia effectively financing the demand for its own products? As one analyst put it, the company is showing impressive results, but it does not appear to have full control over whether its customers will ultimately be able to pay.
