Nvidia beats expectations with record Q2 profit, but shares fall

Shares of Nvidia, the world’s second-most valuable publicly traded company with a market capitalization of over $3 trillion, lost nearly 7 percent in after-hours trading following the release of the report on Wednesday.

The slide, which resulted in a loss of more than $200 billion in stock market value, underscored the extent to which the Silicon Valley chipmaker and high expectations about the business potential of artificial intelligence have become a driving economic force.

Nvidia said second-quarter revenue rose more than 122% year-over-year to a total of $30 billion, well above the average analyst estimate of $28.9 billion, according to estimates compiled by Bloomberg. The results were driven by sales of Nvidia’s Hopper GPU, the company said. Strong demand for Nvidia’s chips boosted the bottom line, with the chipmaker posting a gross profit margin of 75.1% and adjusted earnings per share of 68 cents (analysts had expected earnings per share of 65 cents).

Chips based on the new Blackwell architecture are expected to begin shipping to customers in the fourth quarter of the year, according to Nvidia, in line with previously announced plans (albeit at the end of the date range) to begin shipping in the second half of the year. However, the company also acknowledged production issues that required a change to the “GPU mask to improve production yield.”

Earlier this month, tech news site The Information reported that a design flaw at Blackwell would delay shipments by three months or more. Nvidia CEO Jensen Huang described the production issue as resolved during a conference call with analysts on Wednesday. “No functional changes were necessary,” Huang said.

The company expects Blackwell to generate “multi-billion dollar revenue” in the fourth quarter of the year.

“Blackwell is going to completely change the industry. And Blackwell will be here next year,” Huang told analysts on the conference call.

The risk of a slowdown in AI spending

Nvidia once developed graphics accelerators for video gamers and has since turned its GPUs into key components for generative AI services such as OpenAI’s ChatGPT and Google’s Gemini. Although Nvidia has struggled with rival chipmaker AMD and startups such as Cerebras and Groq, the company currently controls 90% of the AI ​​chip market, according to analysts.

Nvidia is one of the biggest beneficiaries of the AI ​​hype, as internet companies like Google, Meta and Amazon spend tens of billions of dollars on infrastructure to be able to offer AI services. Nvidia’s dominance has led to a massive rally in the company’s shares, which have more than doubled this year and now account for nearly 7% of the S&P 500.

Still, the massive spending on AI infrastructure has fueled ongoing concerns about whether consumers and businesses will ultimately buy enough AI services to justify the investments. And because Nvidia’s business is so concentrated on several large customers like Meta (which has boasted about amassing a stockpile of 350,000 Nvidia GPUs this year), a decline in AI infrastructure spending could have a big impact on Nvidia’s business. In its 10-Q report released alongside its results on Wednesday, Nvidia said four unnamed customers accounted for 46% of total revenue in the second quarter.

Asked about these risks, CEO Huang said on Wednesday’s conference call that the need for GPU chips is not going away anytime soon. The industry race to develop more advanced and powerful models for major languages ​​requires increasingly powerful AI chips, he said. And demand from companies to integrate AI services into their products and operations means cloud providers have no choice but to continue to build out their AI capabilities.

“If you just look at the cloud service providers around the world, you will see that they have virtually no GPU capacity available,” Huang said.

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