Nvidia’s latest earnings report delivered impressive year-over-year growth, yet shares dipped by 2.46% in after-hours trading as the company’s outlook fell short of heightened investor expectations. The results underscore Nvidia’s dominance in the AI hardware market, though concerns about margins and guidance tempered enthusiasm.
Strong Third Quarter Results
Nvidia posted third-quarter revenue of $35.08 billion, a staggering 94% increase from the previous year and surpassing analysts’ estimates of $33.25 billion. The company’s data centre segment was a standout performer, generating $30.8 billion in revenue—more than double last year’s figure and beating the $29.14 billion consensus. Gaming revenue also rose 15% to $3.3 billion, exceeding forecasts, while automotive revenue surged 72% to $449 million, driven by growing demand for AI-driven applications in vehicles.
The company reported an adjusted gross margin of 75%, consistent with prior periods. Adjusted earnings per share were 81 cents, topping expectations of 74 cents. Free cash flow reached $16.79 billion, more than doubling year-on-year.
Guidance Fails to Impress
Despite these robust figures, Nvidia’s guidance for the fourth quarter dampened investor sentiment. The company projected revenue of $37.5 billion, narrowly surpassing the $37.1 billion consensus but falling short of more bullish forecasts of up to $41 billion. Adjusted gross margins are expected to compress to 73-74%, reflecting the high production costs associated with its new Blackwell GPUs. Operating expenses are forecast at $3.4 billion, slightly above estimates of $3.21 billion.
Blackwell Ramp-Up and Margin Concerns
Nvidia’s Blackwell chips, a key driver of future growth, are facing supply constraints, with production expected to remain tight through fiscal 2025. While demand for Blackwell is strong, the transition from Hopper GPUs has weighed on profitability. Analysts noted that while Blackwell’s advanced capabilities position Nvidia for sustained growth, its initial pricing may be less aggressive to avoid margin erosion.
During the earnings call, CEO Jensen Huang highlighted the significant interest in Blackwell from major partners and reiterated the importance of Hopper, indicating continued demand across the product lineup. CFO Colette Kress projected that gross margins could recover to the mid-70s by mid-2025 as production scales and efficiency improves.
Long-Term Prospects Remain Strong
Despite near-term margin pressures and a tepid market reaction, Nvidia’s long-term fundamentals remain compelling. The AI revolution continues to fuel unprecedented demand for the company’s accelerator chips, which are pivotal in developing and running AI models.
Cloud providers, including Microsoft and Amazon Web Services, accounted for 50% of data centre revenue, reflecting AI’s central role in corporate capital expenditure.
Analysts broadly agree that Nvidia’s leadership in AI hardware, coupled with minimal competition, supports a positive long-term outlook. Truist Securities highlighted robust data centre performance, while Bloomberg Intelligence pointed to stabilising margins and strong product ramp-ups as reasons for optimism.
Nvidia’s Q3 results reinforced its position as a market leader in AI technology, but high expectations led to a modest pullback in share price. While short-term headwinds, including supply constraints and margin pressures, cloud the immediate outlook, the company’s strong growth trajectory and strategic investments signal continued strength in the AI-driven era. Investors will be closely watching how Nvidia executes its Blackwell rollout and addresses customer concentration risks in the quarters ahead. Given a 194% surge year-to-date, a dip of -2.4% in after-hours trading is not overly concerning, especially given the only modest beat on guidance for the coming quarter.
