NVIDIA's revenue guidance fell short of Wall Street expectations, plummeting 5% in after-hours trading. Jensen Huang predicts surprises in Blackwell deliveries | Earnings report insights

In the past quarter, AI chip giant NVIDIA's revenue growth continued to slow down, and it is expected to further decelerate this quarter. Although last quarter's revenue exceeded analysts' expectations, the median guidance for this quarter did not reach the high-end expectations of buy-side analysts. From the stock price performance, investors seem to feel that such guidance is not explosive enough, leading to a sharp decline in NVIDIA's stock price after hours.

NVIDIA executives stated during the announcement of the second fiscal quarter financial report that the Blackwell chip is expected to generate billions of dollars in revenue in the fourth fiscal quarter, which is the current quarter. After this financial report, NVIDIA's Chief Financial Officer (CFO) Colette Kress mentioned in the earnings call that Blackwell's revenue is expected to exceed this forecast and revealed that Blackwell plans to start shipping this quarter, with an accelerated pace in the coming year. CEO Jensen Huang stated that the delivery volume of Blackwell this quarter would exceed the company's expectations. NVIDIA's after-hours decline significantly narrowed.

On November 20, Wednesday, Eastern Time, NVIDIA announced its financial data for the third fiscal quarter of 2025 (hereinafter referred to as the third quarter) ending October 27, 2024, as well as the performance guidance for the fourth fiscal quarter (hereinafter referred to as the fourth quarter).

1) Key Financial Data:

Revenue: Third quarter operating revenue was $35.08 billion, a year-on-year increase of 94%, with the median analyst expectation at $33.25 billion, and NVIDIA's own guidance at $31.85 billion to $33.15 billion, compared to a year-on-year growth of 122% in the previous quarter.

EPS: The adjusted earnings per share (EPS) for the third quarter on a non-GAAP basis was $0.81, a year-on-year increase of 103%, with analyst expectations at $0.74, compared to a year-on-year growth of 152% in the previous quarter.

Gross Margin: The adjusted gross margin for the third quarter was 75%, flat compared to the same period last year and in line with analyst expectations, down 0.7 percentage points quarter-on-quarter, with NVIDIA's guidance at 74.5% to 75.5%, compared to 75.7% in the previous quarter, a year-on-year increase of 4.5 percentage points.

2) Segment Business Data:

Data Center: Third quarter data center revenue was $30.8 billion, a year-on-year increase of 112%, with analyst expectations at $29.14 billion, compared to a year-on-year growth of 154% in the previous quarter.

Gaming and AI PC: Third quarter revenue from gaming and AI PC business was $3.3 billion, a year-on-year increase of 15%, with analyst expectations at $3.06 billion, compared to a year-on-year growth of 16% in the previous quarter.

Professional Visualization: Third quarter professional visualization revenue was $486 million, a year-on-year increase of 17%, with analyst expectations at $477.7 million, compared to a year-on-year growth of 20% in the previous quarter.

Automotive and Robotics: Third quarter revenue from automotive and robotics business was $449 million, a year-on-year increase of 72%, with analyst expectations at $364.5 million, compared to a year-on-year growth of 37% in the previous quarter.

3) Performance Guidance:

Revenue: Fourth-quarter revenue is expected to be $37.5 billion, with a fluctuation of 2%, ranging from $36.75 billion to $38.25 billion, with the median analyst expectation being $37.1 billion.

Gross Margin: The non-GAAP gross margin for the third quarter is expected to be between 73% and 73.5%, with a fluctuation of 50 basis points, meaning a minimum of 72.5% and a maximum of 74%.

After the earnings report was released, NVIDIA's stock price, which fell nearly 0.8%, further widened its post-market decline, dropping about 5% at one point, but later narrowed most of the losses, currently down over 1% in after-hours trading.

Third Quarter Revenue Growth Slows to 94% Strong Demand for Hopper Chips Drives Data Center Revenue to Continue Growing Over 100%

The earnings report shows that NVIDIA's revenue continues to set a record for the highest quarterly revenue, but the momentum of growth is slowing.

The year-on-year revenue growth rate for the third quarter slowed to less than 100%, marking the first quarter since the first fiscal quarter of 2024 that did not reach a three-digit year-on-year growth rate. However, this growth rate still exceeded Wall Street's expectations, with the median analyst expectation growth rate being 83.5%.

In the third quarter, NVIDIA's revenue across all business segments exceeded analyst expectations, with the core data center business maintaining over 100% year-on-year growth and a 17% quarter-on-quarter growth, reflecting the continued drive of AI demand.

NVIDIA CFO Kress commented that the year-on-year and quarter-on-quarter growth in the data center for the third quarter was driven by market demand for the Hopper computing platform, which is used for training and inference of large language models (LLM), recommendation engines, and generative AI applications. Cloud service providers contributed about 50% of NVIDIA's data center revenue, with the remaining revenue coming from consumer internet companies.

Kress stated that the strong year-on-year growth in data center revenue was driven by all customer types in the computing and networking sectors. Due to strong demand for Hopper architecture chips, NVIDIA's H200 chip saw significant revenue growth in the third quarter.

Plans to Start Shipping Blackwell Chips in the Fourth Quarter Accelerating Pace Over the Next Year

Kress mentioned the highly anticipated next-generation data center architecture Blackwell, following Hopper. NVIDIA had previously delayed the production and delivery of Blackwell architecture chips by at least one quarter due to design defects.

During the release of the third-quarter report, Kress revealed that NVIDIA successfully replaced the mask for Blackwell, thereby improving production yield. The company plans to begin production and shipment of Blackwell chips in the fourth quarter of this fiscal year and will accelerate shipments throughout the entire fiscal year 2026 Kress stated that NVIDIA will ship both Hopper and Blackwell chips simultaneously in the fourth quarter of this fiscal year and beyond. Both Hopper and Blackwell chip systems have certain supply constraints, and it is expected that Blackwell chips will be in short supply in several quarters of fiscal year 2026, which is the next fiscal year.

Fourth Quarter Revenue Guidance Median Growth of 70%, Wall Street's High-End Expectations Increase by Nearly 90%

NVIDIA's guidance indicates that revenue growth will further slow in the fourth quarter. Based on a median guidance of $37.5 billion, NVIDIA expects fourth quarter revenue to grow approximately 70% year-over-year.

Although NVIDIA's median guidance is higher than the analyst consensus expectation median of $37.1 billion, it is lower than the buy-side expectation of $38.8 billion, and previously Goldman Sachs estimated NVIDIA's fourth quarter revenue to be $39 billion, with some analysts expecting as high as $41 billion. Based on this higher-end expectation of $41 billion, the fourth quarter would see nearly 90% year-over-year growth.

Wall Street Insights noted that prior to the earnings report, Wall Street had mixed expectations for NVIDIA's Blackwell product line. Due to skepticism about Blackwell's prospects, analysts' fourth quarter revenue expectations showed significant variance. According to Bloomberg's compiled analyst consensus expectation of $37.1 billion, the gap between the highest and lowest forecasts exceeds $7 billion.

Some analysts expect customers to delay purchasing Hopper chips, waiting for the new chips to be released. Morgan Stanley's analyst Joseph Moore is one of them, referring to the third quarter as a "transition" quarter. He expects NVIDIA may provide a conservative guidance, slightly above the analysts' average expectation, believing that as long as everything indicates that Blackwell's performance for the year will be very strong, it should satisfy most investors.

Before NVIDIA released its earnings report, Dan Eye, Chief Investment Officer of Fort Pitt Capital Group, stated: "There are significant unknowns regarding Blackwell's capacity. (NVIDIA's) CEO has established a high level of credibility, but the bar is set high." He expects that NVIDIA may find it difficult to provide an impressive fourth quarter performance guidance.

Jensen Huang: Fully Committed to Blackwell Chip Production, This Season's Delivery Will Exceed Our Previous Expectations

NVIDIA CEO Jensen Huang stated that the demand for Hopper and Blackwell chips is astonishing. In the earnings announcement, he said:

"As foundational model manufacturers expand the scale of pre-training, post-training, and inference, the demand for Hopper (chips) and the anticipation for fully ramped-up Blackwell (chips) is incredible."

Last Sunday, media reported that there were overheating issues when Blackwell chips were installed in server racks, prompting NVIDIA to instruct suppliers to modify designs, further delaying the expected delivery dates, raising concerns among clients like Microsoft, Google, and Meta about whether they can deploy Blackwell servers on time If customers choose to purchase more Hopper chips as a result, it may increase NVIDIA's earnings in the short term, but it could affect long-term revenue growth.

During the earnings call following the financial report, an analyst asked about the heat issue of the Blackwell servers reported by the media. Jensen Huang responded:

"The production of Blackwell is in full swing. This quarter we will deliver more Blackwell products than we previously expected."

Previously, Morgan Stanley analyst Moore's report suggested that the market's concerns about the heat issue of Blackwell chips were exaggerated, and there were currently no signs of any delays in chip shipments.

A gross margin of 75% in the second half of next year is a reasonable assumption; Hopper's revenue may grow sequentially in the fourth quarter

During the earnings call, an analyst asked about the gross margin and how the launch of Blackwell would affect it. CFO Kress responded that when Blackwell begins mass production, the gross margin will be just over 70%, and the company hopes to quickly reach around 75%.

Another analyst then asked when the gross margin would reach around 75%, would it be in the second half of next year? Kress answered yes, the gross margin may reach around 75% in the second half of next year, which is a "reasonable" assumption or target.

Kress stated that although customers want to install Blackwell systems, NVIDIA will continue to sell Hopper chips. She mentioned that the H200 business has seen significant growth, making it the fastest-growing business in the company's history. Hopper's revenue in the fourth quarter "has the potential" to grow sequentially compared to the third quarter, and noted that demand for H200 remains strong, while customers are also seeking to obtain Blackwell chips