NVDA Earnings Preview: Great Expectations as per usual
5min read Nvidia (NVDA) is set to report its Q3 earnings on November 20 after the market close, with analysts expecting EPS of $0.75 and revenue of $33.12 billion, according to FactSet. This earnings report comes shortly after NVDA was added to the Dow Jones Industrial Average on November 8, replacing Intel, a testament to Nvidia’s significant influence in the AI and semiconductor industries. Analysts are optimistic about another "beat and raise" scenario, expecting Nvidia to exceed both revenue and earnings projections, driven largely by continued high demand in its core segments, particularly Data Center.
The high expectations represent a significant hurdle for NVDA as evidenced by its sell off following a strong beat and raise in Q2. The company has become a victim of its own success. Still, the upward trend line remains significant support. If we do see another "sell the news" reaction then traders should have the $120-125 area on the radar for a buying opportunity.
The Data Center segment remains Nvidia’s main revenue driver, with analysts projecting robust growth driven by demand for AI-capable GPUs like the Hopper and the upcoming Blackwell, anticipated to generate substantial revenue in future quarters. Analysts at Truist and Jeffries have raised price targets, citing strong demand for these AI accelerators among hyperscalers and enterprise customers. Although there are concerns about potential overheating issues in Blackwell configurations, analysts, including those from Stifel, believe any delays will have minimal impact on Nvidia’s long-term growth trajectory as demand remains robust.
Nvidia has guided for Q3 revenue in the range of $31.85 to $33.15 billion, with gross margins projected around 74.4% to 75.0%, demonstrating confidence in maintaining profitability despite potential supply chain constraints. The company's recent strategic decisions, like moving to a new power management supplier, indicate attempts to improve operational efficiency, even as some supply challenges could limit near-term growth. However, analysts, including those from KeyBanc, expect that any short-term supply limitations on Hopper and Blackwell will be outweighed by long-term growth prospects in the Data Center market.
Investor expectations remain high for Nvidia, with a consensus view that the company’s AI leadership will drive continued gains into FY25. Analysts are particularly bullish on Nvidia’s ability to capitalize on the expanding demand for generative AI and physical AI applications, as indicated by recent CAPEX commitments from major clients like Microsoft and Meta Platforms. Truist and Oppenheimer have both raised price targets, citing increased growth expectations in Data Center and the promising revenue pipeline from AI initiatives and the Blackwell launch.
Nvidia's Automotive and Gaming segments are also expected to contribute, albeit at a smaller scale compared to Data Center. Automotive revenue has shown strong year-over-year growth, driven by the adoption of Nvidia's AI Cockpit and self-driving platforms. Gaming, benefiting from strong demand for GeForce RTX GPUs, could see modest growth, with analysts at OPCO noting that the segment remains resilient even amidst a focus shift towards AI.
Looking further into FY25, analysts see sustained growth potential for Nvidia, especially as the Blackwell platform ramps up. HSBC and BofA Securities are particularly bullish, with HSBC predicting that the AI-driven Data Center momentum is still underappreciated by the market. With Nvidia’s AI infrastructure expanding, the introduction of Spectrum-X Ethernet for AI further strengthens its position as a full-stack solution provider for data centers and AI computing.
Nvidia’s AI momentum remains strong as demand for its hardware continues to rise, with AI server makers like Super Micro Computer and Hon Hai, as well as Microsoft, highlighting rapid adoption of Nvidia’s latest GPUs. CEO Jensen Huang is optimistic about further advancements, emphasizing Nvidia’s commitment to accelerating AI innovation. With Huang expressing that “we haven’t seen anything yet” in AI, this October outlook underscores Nvidia's potential as it prepares to report earnings, where strong demand and continuous performance improvements could bode well for the results expected tomorrow.
Blackwell Overheating Issues
Shares of NVDA slipped approximately 1% on November 18 following reports from The Information that its new AI GPU platform, Blackwell, is facing overheating issues in high-capacity server racks common in data centers. This issue requires NVIDIA to redesign these server racks, potentially delaying broader adoption and impacting expected revenue from Blackwell.
During NVIDIA's Q2 earnings call, the company anticipated several billion dollars in Blackwell revenue by Q4, noting that demand continued to surpass supply. While the overheating issue may not affect Q3 results, it could dampen Q4 projections and prompt more conservative guidance, especially as NVIDIA's stock reached record highs last week.
Despite the setback, the overheating problem does not reflect a decrease in demand. NVIDIA’s Hopper platform continues to perform well, with demand increasing even as customers prepare to adopt Blackwell. NVIDIA expects Hopper shipments to rise in the latter half of FY25, and it has multiple new Hopper products ramping up that should support growth into the second half of FY25.
While the Blackwell overheating issue may impact NVIDIA’s Q4 revenue outlook, it is likely a temporary challenge linked to server rack design rather than the GPU itself. This delay could ultimately lead to a surge in future revenue as demand for AI hardware remains strong.
NVDA Under a New Administration
A Trump presidency could have mixed impacts on Nvidia. While Nvidia’s AI chips made in Asia may face tariffs if additional tariffs on foreign-made goods are implemented, the company could likely pass on the costs due to high demand for its products. Potential changes to chip export policies could also benefit Nvidia, particularly if Trump’s administration loosens export restrictions to Middle Eastern countries, expanding its market. However, uncertainty around U.S. support for Taiwan—a key semiconductor hub and home to Nvidia’s critical manufacturing partners—presents a significant geopolitical risk that could disrupt Nvidia’s supply chain and impact the broader tech industry.
Nvidia is reportedly in discussions with Elon Musk about investing in his AI startup, xAI, which powers the Grok chatbot on Musk’s X platform. xAI is seeking to raise several billion dollars at a valuation around $40 billion, with interest from both strategic investors like tech companies and venture firms, including Sequoia Capital, Andreessen Horowitz, and Vy Capital. These talks follow recent reports that xAI is aiming to expand with support from major tech players.
Q2 Recap
Nvidia’s Q2 results showcased exceptional growth, as the company surpassed both revenue and EPS expectations, with EPS of $0.68 topping the consensus by $0.03 and revenue rising 122.4% year-over-year to $30.04 billion, beating forecasts. The Data Center segment stood out, growing 154% annually and 16% sequentially, fueled by high demand for Nvidia’s Hopper GPU platform, which supports generative AI, language models, and other complex computations. Gaming, Professional Visualization, and Automotive segments also experienced growth, up 16%, 20%, and 37% year-over-year, respectively, with Gaming seeing strong back-to-school season sales and Automotive benefiting from Nvidia’s AI Cockpit solutions.
The company provided an optimistic outlook for Q3, projecting revenue between $31.85 billion and $33.15 billion and targeting gross margins in the mid-70% range. Nvidia also continued to expand its product lineup, with its Spectrum-X Ethernet for AI doubling revenue sequentially and AI Enterprise software supporting the projected $2 billion annual software run rate. Additionally, Nvidia authorized a $50 billion share repurchase, demonstrating confidence in its long-term growth trajectory and reinforcing value for shareholders amid the company’s stock rally.
Notably, Nvidia’s growth in China contributed significantly to its Data Center revenue despite existing export restrictions. The company also addressed concerns about the delayed launch of Blackwell, the successor to the Hopper platform, affirming that Blackwell production would commence in Q4 and begin generating “several billion dollars” in revenue, with demand far exceeding supply. This strong demand is expected to bolster Nvidia’s Data Center segment even as Hopper shipments are anticipated to increase through FY25.
Investors responded cautiously, with Nvidia shares initially dipping as some felt the Q3 guidance and EPS beat were less substantial than previous quarters. However, analysts remained optimistic, pointing out that Nvidia’s near-term stock volatility is largely tied to elevated expectations. The upcoming Blackwell launch and increased AI investments from key customers like Microsoft, Alphabet, and Meta Platforms should provide sustained growth and reinforce Nvidia’s dominant position in the AI chip market.
Overall, Nvidia’s Q2 report underscored an AI-driven growth trajectory across multiple industries, from healthcare to cloud services. With demand for generative AI and accelerated computing showing no signs of slowing, Nvidia is well-positioned to capitalize on these opportunities. As the company prepares for Blackwell’s launch, analysts anticipate that Nvidia will continue leading the AI hardware space, potentially experiencing further demand-driven growth throughout 2025 and beyond.
In summary, Nvidia’s Q3 report is likely to reflect the company’s leadership in AI computing and its robust growth outlook despite elevated expectations. While near-term challenges related to supply constraints and potential Blackwell delays exist, analysts remain optimistic about Nvidia’s strong market position, seeing the stock as well-positioned to capture the ongoing AI demand boom.