(News Bulletin 247) – The graphics processor specialist has, indeed, significantly exceeded analysts’ forecasts on the occasion of the publication of its second quarter. But its revenue outlook for the third quarter does not sufficiently exceed expectations and the company has confirmed that it is experiencing challenges in the production of its new generation of chips, Blackwell.

To say the tension was running high ahead of Nvidia’s quarterly results is an understatement. Wedbush analyst Dan Ives called the release “the most important of the year” for the market. Bank of America, for its part, noted that the positions taken by traders in the options market (derivatives) implied a reaction of nearly 10% in Nvidia’s stock after its release, both up and down.

Investors therefore fastened their seatbelts before the graphics processor specialist delivers its second-quarter results on Wednesday at 10:30 p.m.

And, unfortunately for the company’s shareholders, Nvidia’s announcement did not please the market. In after-hours trading on Wall Street, shares of the group founded by Jensen Huang ended down 6.9%.

However, at the start of trading on Wall Street this Thursday, Nvidia shares limited their decline, losing 1.6% to $123.58 around 4 p.m.

Bank of America recommends “ignoring the noise on quarterly results”, that is, ignoring the market reaction, and buying “one-off growth with a very reasonable valuation”. The American bank, however, acknowledges that the publication is “good but not great”.

>> Access our exclusive graphic analyses, and enter the confidence of the Trading Portfolio

Growth that still exceeds 100%

Despite a good performance in absolute terms, Nvidia did not exceed forecasts enough to avoid a correction, while its stock price rose by 150% over the whole of 2024, and has increased almost ninefold since the end of 2022. The company has also failed to allay fears about the production of its new generation of graphics processors, which are based on the Blackwell architecture.

“At this level, it’s not just about beating estimates: markets are expecting records to be shattered, and Nvidia’s impressive performance didn’t quite deliver the splash Wall Street was hoping for. In a market where ‘just great’ doesn’t cut it, even Nvidia’s excellent numbers couldn’t escape some investor disappointment,” says Stephen Innes of Spi AM.

For more than two years since the launch of ChatGPT, Nvidia has seen its results and activity boosted by the rise of generative artificial intelligence (AI), its graphics processors being essential to provide the computing power necessary for the development of large generative AI language models.

Also in Nividia’s second quarter, from May to the end of July, the company’s revenue jumped 122% year over year and 15% from the first quarter, to $30 billion. The company significantly beat the consensus of $28.6 billion. Nvidia’s gross margin came in at 75.7% versus analysts’ expectations of 75.5%, while earnings per share more than doubled year over year to 68 cents versus 64 cents expected.

“Nvidia achieved record revenue as global data centers surge to modernize the entire computing stack with accelerated computing and generative AI,” Jensen Huang said in a statement.

Concerns over new chips

The forecasts for the current quarter have nevertheless disappointed the highest hopes. For its third quarter, Nvidia is counting on revenues of $32.5 billion, with a variation of plus or minus 2%. While the consensus for this period was $31.49 billion, according to Bank of America Bloomberg points out that the forecast gaps were quite significant, with estimates going up to $37.9 billion. For analysts at Bloomberg Intelligence, Bloomberg’s financial research division, Nvidia “came up against high and unsustainable expectations.”

Another point that could have made the market tense: fears surrounding Blackwell. In March, Nvidia unveiled its new graphics processors based on this architecture and whose characteristics are superior to its flagship product, the H100. These new chips “have a computing power 1000 times greater than the chips manufactured eight years ago” and are also less energy-intensive, recalls Christopher Dembik of Pictet AM.

In early August, news outlet The Information reported potential delays in deliveries of Blackwell graphics processors due to production issues.

Jensen Huang said Wednesday night that customer expectations for Blackwell were “incredible.” However, Nvidia’s chief financial officer Colette Kress said the company had decided to change a manufacturing process step (a change of mask, a sheet of glass on which microscopic electronic circuits are drawn) in order to “improve the yield” of the production of these graphics processors.

The ramp-up of Blackwell chips is expected to arrive in the fourth quarter of Nvidia’s 2024-2025 fiscal year, between November and January, and the group expects to generate “multiple billion dollars in revenue” related to Blackwell over the same period, the CFO continued.

Some market observers have interpreted these indications as possible delays in the deliveries of this new generation of graphics processors. This is the case of Gene Munster, manager at Deepwater asset management. On X, the market specialist notes that the group’s outlook for the third quarter seems to integrate “what seems to be the negative impact of a two-three delay for Blackwell”. “The bears (investors betting on the stock’s decline) will say that Nvidia’s results were good but not superb,” ​​he also wrote on the social network.

Nvidia also announced a $50 billion share buyback program.