Nvidia Earnings Call: A Record Quarter with a Twist

Nvidia’s Q2 earnings call was a mixed bag, with the company reporting a record quarter but also revealing a drop in gross margins. Revenue reached $30 billion, up 15% sequentially and 122% year-over-year, driven by strong demand for Nvidia’s Hopper and Blackwell architectures. However, gross margins took a hit, falling to 75.1% due to a higher mix of new products within data center and inventory provisions for low-yielding Blackwell material.

Gross Margin Drop: A Concern?

The drop in gross margins is a concern for investors, as it could impact Nvidia’s profitability in the short term. The company attributed the decline to the ramp-up of new products, including the Blackwell architecture, which is expected to be a significant contributor to revenue in the coming quarters. However, the lower gross margins may put pressure on Nvidia’s stock price, which has been on a tear in recent months.

Blackwell Architecture: A Key Driver

The Blackwell architecture is a key driver of Nvidia’s growth, with the company expecting to ship several billion dollars’ worth of Blackwell-based products in Q4. However, the production ramp-up has been delayed due to a change in the Blackwell GPU mask, which is now complete. Nvidia’s CEO, Jensen Huang, assured investors that the change was minor and did not impact the functionality of the product.

Impact of Blackwell Delay

The delay in Blackwell production has raised concerns among investors, as it may impact Nvidia’s ability to meet demand for its products. However, the company has assured investors that it is working to resolve the issue and expects to ship significant volumes of Blackwell-based products in Q4.

Data Center Growth

Nvidia’s data center business continues to be a significant driver of growth, with revenue increasing 16% sequentially and 154% year-over-year. The company’s Hopper architecture has been well-received by customers, and the Blackwell architecture is expected to further accelerate growth in the data center segment.

AI Leadership

Nvidia’s leadership in the AI market continues to be a significant driver of growth, with the company’s products being used in a wide range of applications, including generative AI, model training, and inferencing. The company’s CUDA platform has become the industry standard for AI development, and its GPUs are being used by leading cloud service providers, including Amazon Web Services, Microsoft Azure, and Google Cloud.

International Growth Opportunities

During the earnings call, Jensen Huang also highlighted the significant growth opportunities for Nvidia in international markets, particularly in countries that are investing heavily in AI infrastructure. Huang noted that countries like Japan, South Korea, and China are recognizing the importance of AI in driving economic growth and competitiveness, and are investing heavily in AI research and development. Nvidia is well-positioned to capitalize on this trend, with its products and services being used by leading research institutions and companies in these countries.

Sovereign AI Opportunities

Nvidia’s CEO also highlighted the company’s sovereign AI opportunities, which refer to the use of AI by governments and institutions to drive national interests. Huang noted that Nvidia is working with governments and institutions around the world to develop AI solutions that can help drive economic growth, improve healthcare outcomes, and enhance national security.

Price Projections: What to Expect

Wall Street firms have been quick to react to Nvidia’s earnings call, with some analysts adjusting their price projections for the company. Bank of America Securities has a price target of $275, while Goldman Sachs has a price target of $250. Morgan Stanley has a price target of $230, citing concerns about the drop in gross margins.

Best of Us Investors’ Projections

Best of Us Investors stands firm with its prior projections that Nvidia’s price targets as follows:

• January 1, 2025: $155.02
• January 1, 2026: $196.02
• January 1, 2027: $226.18

Conclusion

Nvidia’s Q2 earnings call was a mixed bag, with the company reporting a record quarter but also revealing a drop in gross margins. While the drop in gross margins is a concern, Nvidia’s strong revenue growth and dominant position in the AI market make it an attractive investment opportunity. As the company continues to execute on its strategy, investors can expect significant growth in the coming quarters.

What’s Next

Nvidia’s Q3 earnings call will be closely watched, as investors look for signs of continued growth and improvement in gross margins. The company’s dominance in the AI market and strong revenue growth makes it an attractive investment opportunity, but the drop in gross margins is a concern that needs to be addressed.