Thu, Feb 27, 2025 page9

• Nvidia gives underwhelming report after two years of blowouts

  CHALLENGE AHEAD: Nvidia's results reaffirm that it continues to lead the AI landscape, but it will be challenging for management to continue to significantly beat expectations for future growth, an analyst says

  • Bloomberg
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  Nvidia Corp, the chipmaker at the center of an artificial intelligence (AI) spending boom, delivered good-but-not-great quarterly numbers yesterday, drawing a muted response from investors accustomed to blowout results.

  Sales will be about US$43 billion in the fiscal first quarter, which runs through April, Nvidia said in a statement. Analysts had estimated US$42.3 billion on average, with some projections ranging as high as US$48 billion.

  The company also warned that gross profit margins would be tighter than anticipated as it rushes to roll out a new chip design called Blackwell. And there’s the risk of US tariffs weighing on results. After fluctuating between gains and losses, Nvidia shares were down less than 1 percent in late trading yesterday.

  

  The logo of Nvidia Corp is pictured at the company's headquarters in Santa Clara, California, on May 21 last year.

  Photo: AFP

  The mixed outlook comes at a shaky time for the AI industry. Nvidia shares have dipped this year on concerns that data center operators will slow spending. Chinese start-up DeepSeek (深度求索) also has sparked fears that chatbots can be developed on the cheap, potentially reducing the need for Nvidia’s powerful chips for AI.

  Meanwhile, Nvidia relies heavily on Taiwan Semiconductor Manufacturing Co (台積電) for the production of its graphics processing units, raising concerns it faces geopolitical risks.

  Though Nvidia executives addressed most of those issues, it has become harder for the company to produce blockbuster earnings reports.

  “Guidance was slightly underwhelming,” Edward Jones & Co analyst Logan Purk said in a report. But early sales of the Blackwell chip should help ease investor concerns after earlier reports of production delays, he said.

  The company got US$11 billion of revenue from Blackwell in the fourth quarter, something Nvidia described as the “fastest product ramp” in its history. “Demand for Blackwell is amazing,” chief executive officer Jensen Huang (黃仁勳) said in the statement.

  Though the company’s fiscal fourth-quarter sales topped analysts’ estimates, they did so by the smallest margin since February 2023. Earnings, meanwhile, had the narrowest amount of upside since November 2022, according to data compiled by Bloomberg.

  The stock had been down 2.2 percent this year, following stratospheric gains in 2023 and last year that turned Nvidia into the world’s most valuable chipmaker.

  The company's sales in the fourth quarter, which ended on Jan. 26, rose to US$39.3 billion. That matched estimates, though some projections ranged as high as US$42 billion. Underlining just how quickly the company has grown: Its latest quarterly sales were bigger than Nvidia’s annual revenue two years ago, when it totaled US$27 billion.

  Profit was US$0.89 a share, minus certain items. Wall Street was looking for US$0.84.

  “We will grow strongly in 2025,” Huang said during a conference call with analysts.

  The data center unit, by far Nvidia’s biggest source of revenue, generated sales of US$35.6 billion. That beat the average estimate of US$34.1 billion. Gaming-related sales — once Nvidia’s core business — amounted to US$2.5 billion. Analysts projected US$3.02 billion on average. Automotive was US$570 million.

  The data center division alone now has more revenue than rivals Intel Corp and Advanced Micro Devices Inc generate in total, combined.

  Heading into the earnings report, analysts had expressed concern about near-term growth in Nvidia’s biggest business, which serves data center customers. The big question was whether supply constraints and a shift to Blackwell would slow growth. The new technology is more sophisticated, bringing manufacturing challenges.

  DeepSeek added to the worries after releasing a powerful AI model that it said required far fewer resources to create. The announcement late last month led to a widespread selloff in AI-related shares. Nvidia shed a staggering US$589 billion of capital in one day of trading, a record for the markets.

  But key Nvidia customers, such as Microsoft Corp, have maintained their capital expenditure plans, suggesting that the AI spending surge will remain strong.

  During the conference call, Huang argued that DeepSeek will stoke interest in a new approach to AI, expanding demand for Nvidia products. The DeepSeek model relies on fine-tuning, so it will require more computing sessions than the “one shot” training of other software, he said. In fact, the approach might require millions of times more computing power than today, he said.

  “Future reasoning models can consume much more compute,” Huang said, calling DeepSeek’s model “an excellent innovation.”

  Though Blackwell will help handle those computing tasks, the rollout has come at a cost. The expense of getting the product to market has weighed on profit margins, Nvidia said. The savings will come later when the company is able to refine its supply chain, according to chief financial officer Colette Kress.

  Gross margin will return to a “mid-70s” percentage by the end of the year. In the current quarter, that measure will be about 71 percent, Nvidia said, about a point below the average of analysts’ estimates.

  “We think it will be challenging for management to continue to significantly beat expectations for future growth,” Edwards Jones’ Purk said.
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