Nvidia posted another quarter of record earnings Wednesday, and its shares gained as a forecast of accelerating growth helped calm rising anxiety throughout the market surrounding the viability of the artificial-intelligence trade and fears about overspending on AI infrastructure.
For the quarter ended in July, Nvidia reported record sales of $96.2 billion, or 4% higher than the $92.3 billion analysts polled by FactSet had expected. Net income of $59.7 billion and earnings per share of $2.46 also beat analyst expectations by wide margins.
The crucial data-center segment, which includes most of the AI servers for which Nvidia is best-known, produced sales of $89 billion. Analysts had expected $86.3 billion.
Nvidia's shares gained more than 4% in after-hours trading after Chief Financial Officer Colette Kress, speaking on a call with investors and analysts, said the company expects revenue to grow 70% in 2028.
A flurry of dealmaking activity and product-related news over the past few months has thrust Nvidia-the world's largest publicly traded company and dominant designer of advanced computer chips-even closer to the center of the AI boom.
The $5 trillion tech behemoth earlier this month announced that it would partner with a who's-who of top Wall Street investment firms to provide guarantees for up to $500 billion in data center financing in order to better help its customers afford its chips. Shortly afterward, Nvidia agreed to backstop a massive Ohio data center project by OpenAI that could leave the company on the hook for billions of dollars if plans to lease it fall through.
These and other recent developments-including reports of sharp price increases on Nvidia's servers due to the capacity crunch in memory chips and the chip firm's ambitious investment in designing AI models to fend off China-have raised investors' eyebrows in recent weeks. Nvidia's stock price closed lower for seven straight trading days until the skid ended Tuesday.
Kress, the CFO, defended the strategy on the earnings call. Kress said Nvidia expects big frontier AI labs like OpenAI "to become the largest technology companies in history."
These labs face a bottleneck, however, in accessing all the computing power they need to develop products and improve models, and that is why they need Nvidia's financial help, Kress said.
"We recognize the scale of this support, and we know some will call this circular financing. We see it differently," she said. "The equity returns on our invested capital will be excellent."
"The big picture is that we're going through this platform shift and it affects every computer company," said Jensen Huang, Nvidia's chief executive. "These will be some of the most consequential technology companies in history."
Despite surging demand for Nvidia's products, there remains a persistent gap between how much big tech companies are spending on data centers and other computing infrastructure and how slowly profits are being generated by the end products of AI, said Naveen Chhabra, principal market analyst at Forrester, a research firm.
"Businesses are having a tough time bringing AI into production, and that won't change overnight," Chhabra said. "There's a burgeoning gap between the investment in AI and the business value of it. The more it grows, the more troublesome it is. If AI projects don't deliver to the current expectations that businesses have, they will abandon those projects."
In order to narrow that gap on the global level, the market needs to see more examples of enterprise AI tools that produce positive returns on investment. "That's what will improve the optimism, the positivity about the potential of AI," Chhabra said.
Wednesday's report showed Nvidia blowing through analysts' expectations once again, but also underscored how the firm has increasingly become a victim of its own success in the market: big earnings beats alone are no longer enough to drive up the company's share price.
"It felt for a long time like Nvidia was the only company anyone cared about in AI. It was like Atlas, holding up the market on its shoulders," said Will Rhind, founder and CEO of Granite Shares, a manager of exchange-traded funds with $16 billion in assets. "There's not a lot of concern in the market anymore about demand for Nvidia's chips. The bigger questions now are about the broader AI narrative."
Whether or not Nvidia's earnings beat Wall Street's expectations is no longer so important, Rhind said. Investors are more concerned about the company's guidance for the future on topics such as the schedule of new generations of products and the speed and cost of the AI infrastructure build-out.
Other issues that are top of mind for Nvidia shareholders are whether or not the company will someday restart sales in China, the rising cost of components such as memory chips and increased competition for its processors from both startups and from Nvidia's own major customers, such as OpenAI and Anthropic, which are working to design their own custom processors suited to their specific respective needs.
The company said that it is not expecting any data center revenue from China next quarter. The company also guided expectations for gross profit margins lower over the next year, a significant change from previous quarters and a result, Kress said, of memory chip prices rising faster than the company had predicted.
Next quarter, Nvidia's gross margins are expected to fall from 75% to 74%, then to a range of 71% to 72% in the fiscal fourth quarter, before settling at around 72% to 73% after that, Kress said Wednesday.
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