Nvidia projected its slowest revenue growth in seven quarters on Wednesday, falling short of the high expectations set by some investors who have elevated it to the status of the world's most valuable company.
Following the announcement of its results, shares of the Santa Clara, California-based firm dropped by 5%, although they later recovered slightly to a 1.5% decline in after-hours trading. During the regular trading session, the stock closed down by 0.8%.
Investor anticipation was high prior to the results, with Nvidia's shares rising over 20% in the past two months and reaching an intraday record on Monday. The stock has nearly quadrupled in value this year and has increased more than ninefold over the past two years.
Nvidia is currently in the process of launching its advanced Blackwell family of artificial intelligence chips, which are expected to initially impact the company's gross margins but are anticipated to improve over time.
The new processors have been well-received by Nvidia's clients, and the company is expected to surpass its initial sales projections of several billion dollars for the fourth quarter, as noted by finance chief Colette Kress during a conference call with analysts on Wednesday.
In response to media reports regarding overheating issues with a flagship liquid-cooled server featuring 72 of the new chips during initial testing, Chief Executive Jensen Huang stated that there are no problems, and that customers like Microsoft, Oracle, and CoreWeave are successfully implementing the systems.
"There are no issues with our Grace Blackwell liquid-cooled systems," Huang told Reuters. "The engineering is quite challenging, but we are in a good position."
Kress indicated that the new chip line will initially have gross margins in the low 70% range, which are expected to rise to the mid-70% range as production increases.
The company has forecasted revenue of $37.5 billion, with a margin of error of 2%, for the fourth quarter, compared to analysts' average estimate of $37.09 billion, according to data from LSEG.
Nvidia continues to experience impressive growth driven by substantial demand for its chips, which serve as the core components of sophisticated generative AI systems. However, this growth represents a noticeable deceleration compared to previous quarters, during which the company frequently reported sales that more than doubled.
"The age of AI is in full swing, driving a global transition to NVIDIA computing," Huang stated in the earnings announcement. "The demand for Hopper and the anticipation surrounding Blackwell—now in full production—are remarkable as foundation model developers scale their pretraining, post-training, and inference processes," he added, referencing two of the company's high-performance AI chips.
Nvidia's forecast for the fourth quarter suggests that revenue growth will decrease to approximately 69.5%, down from 94% in the third quarter.
"Investors have grown accustomed to significant earnings surprises from this company, but achieving that is becoming increasingly challenging," remarked Ryan Detrick, chief market strategist at Carson Group. "This report is still quite strong, but when expectations are set so high, it complicates matters."
Despite the soaring demand for its chips, Nvidia faces supply chain challenges that hinder its ability to deliver the substantial revenue increases that have contributed to its popularity on Wall Street.
One of the key constraints on chip supply has been the limited capacity for advanced manufacturing processes at TSMC, Nvidia's manufacturing partner.
"I anticipate that their quarterly growth rate will persist, as they will face supply chain constraints for much of 2025, with demand exceeding supply," said Ben Bajarin, CEO of Creative Strategies. "Blackwell incorporates more advanced packaging from TSMC than previous chips, which adds complexity."
Huang refrained from discussing specific production challenges with TSMC but informed Reuters that "as we ramp up Blackwell, we will continue to increase production lines, enhance our yield, and improve our cycle time. All of these factors will boost our output."
The company reported adjusted earnings of 81 cents per share for the third quarter, surpassing estimates of 75 cents per share.
Sales in the data center segment, which represents a significant portion of Nvidia's revenue, surged by 112% to reach $30.77 billion for the quarter ending on October 27. This segment had previously experienced a remarkable growth rate of 154% in the preceding quarter.
Nvidia's revenue growth is largely driven by ongoing investments from cloud service providers in its chips, as they enhance their data centers to meet the demanding processing requirements of generative AI.
The company announced that it has addressed a design issue with its Blackwell chips by modifying the manufacturing blueprints utilized by TSMC.
"Concerns about possible supply chain disruptions are evidently raising some alarms," noted analyst Bob O'Donnell from TECHnalysis Research.
Additionally, the company reported that its adjusted gross margin decreased to 75%.