Nvidia earnings: ”Sees incredible demand for new Blackwell chips”

Peter Garnry

Chief Investment Strategist

Quick take on Nvidia earnings

Nvidia has just reported FY25 Q2 (ending 28 July) results after the US market close. Below are the key take-aways from the result.

• Shares are trading 2-5% lower as the initial reaction is muted
• Q2 revenue at $30bn vs est. $28.9bn up 122% YoY was driven by an upside surprise in its data center business. Q2 revenue saw an increase of $4bn compared to the previous fiscal quarter.
• Q2 adjusted EPS at $0.68 vs est. $0.65 reflecting improved gross margin at 75.7% vs est. 75.5%
• Q3 revenue outlook is $32.5bn plus or minus 2% against consensus at $31.9bn
• The board of directors has approved an additional $50bn in buyback of shares
• Samples of the new Blackwell AI chips are being shipped to partners and customers. Production will be ramped up in fiscal 2025 Q4 which ends in January 2025.
• Expects several billion dollars of revenue in fiscal 2025 Q4 from Blackwell chips

Nvidia confirms that Blackwell will be the next big investment wave

Nvidia pretty much did what we expected in our preview, beating on revenue and earnings in fiscal Q2 and guiding fiscal Q3 revenue above the median consensus estimate. Judging from the initial market reaction in extended trading hours the loftiest expectations were clearly not met. The stock price reaction fell short of the historical average of about 7-8% absolute 1-day move after earnings and the 10% anticipated by the options market this time. Key for sentiment in Nvidia shares is how management talks about the outlook on the conference call.

Coming into the earnings there was some nervousness around the Blackwell chip as Nvidia had already admitted that there had been some design flaws that had postponed the production schedule. The risk was that the problems were bigger than initially expected, but based on Nvidia’s outlook for the Blackwell chips in terms of production ramp-up and revenue generation, it suggests that whatever the problem was it will not derail the entire production of Blackwell chips.

Overall, investors should be pleased with Nvidia’s results and outlook. It confirms that there will likely be another AI investment wave as the big technology companies will invest heavily in the new Blackwell chips as they are more energy efficient and have significantly more computing power for both training and inference calculations so important for AI. Another take-away is that the competition is not even close to take market share from Nvidia and thus the investment case still looks solid.

With the current expectations for FY26 (ending January 2026, so essentially 2025) free cash flow of $85bn, Nvidia is valued roughly at a 12-month free cash flow yield of 3% compared to around 4.5% for MSCI World. 

Previous weekly equity market updates

• Nvidia earnings will show another quarter of explosive growth (23 August 2024)
• The big rebound in equities, Palo Alto earnings on tap (16 August 2024)
• European banks: Strong Q2 earnings as rate cuts loom (14 August 2024)
• Low recession probability, strong earnings, and US inflation (9 August 2024)
• Election drama, Tesla bounce, and earnings kick-off (5 July 2024)
• US election heats up, Alfen rout, and Micron earnings (28 June 2024)
• French election, king Nvidia, and FedEx earnings (21 June 2024)
• Tech rally, inflation surprise, and EU trade war (14 June 2024)
• AI bonanza drives new highs and dangerous index concentration (7 June 2024)
• Chinese setback, AI woes, and ECB decision (31 May 2024)
• Nvidia earnings, electrification boom, and bubbles (24 May 2024)
• New all-time high on speculative stocks comeback (17 May 2024)