Nvidia's Earnings Beat Fails to Impress Investors

Nvidia (NASDAQ: NVDA) reported strong earnings for the fourth quarter of fiscal 2025, with revenue up 12% quarter-over-quarter and 78% year-over-year, reaching $39.3 billion. GAAP earnings per diluted share increased 14% quarter-over-quarter and 82% year-over-year to $0.89. Non-GAAP earnings per diluted share rose 10% quarter-over-quarter and 71% year-over-year to $0.89. Despite these impressive results, Nvidia's stock price remained largely unchanged, reflecting investor concerns about the company's future growth prospects.



Nvidia's CEO, Jensen Huang, attributed the company's success to the growing demand for AI chips, stating, "Demand for Blackwell is amazing as reasoning AI adds another scaling law— increasing compute for training makes models smarter and increasing compute for long thinking makes the answer smarter." However, investors seemed unimpressed by the company's performance, with some expressing concerns about the sustainability of Nvidia's business model in the face of more efficient AI models.



One factor contributing to the muted market response was the slowdown in Nvidia's growth rate. As the company's sales and profits rise, its growth rate has been decreasing, a phenomenon known as the law of large numbers. This is evident in the company's quarterly results, where the growth rate has been decreasing compared to previous quarters. Additionally, investors may have been expecting even more impressive results, leading to a relatively muted response to Nvidia's earnings beat.

Another factor influencing investor sentiment was the announcement by Chinese startup DeepSeek of its R1 model, which was developed using a fraction of the AI chips and at a lower cost compared to other models. This raised concerns among investors about the future of AI chipmakers like Nvidia, as it suggested that more efficient AI models could reduce the demand for their products.

Despite these concerns, Nvidia's outlook for the first quarter of fiscal 2026 remains strong, with revenue expected to be $43.0 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 70.6% and 71.0%, respectively, plus or minus 50 basis points. GAAP and non-GAAP operating expenses are expected to be approximately $5.2 billion and $3.6 billion, respectively. GAAP and non-GAAP other income and expense are expected to be an income of approximately $400 million, excluding gains and losses from non-marketable and publicly-held equity securities. GAAP and non-GAAP tax rates are expected to be 17.0%, plus or minus 1%, excluding any discrete items.

In conclusion, Nvidia's earnings beat failed to impress investors due to a combination of factors, including the slowdown in growth rate, investor concerns about the sustainability of the company's business model, and the announcement of more efficient AI models. Despite these concerns, Nvidia's outlook for the first quarter of fiscal 2026 remains strong, indicating that the company's long-term growth prospects remain intact. However, investors will continue to monitor the company's performance and the evolving landscape of AI technology to assess the potential impact on Nvidia's future earnings.