Breaking Down NVIDIA's Latest Earnings: What You Need to Know

Global AI chip giant $NVIDIA Corp(NVDA)$   released its FY25 Q3 results after the US market closed on November 20, significantly exceeding market expectations. The company's revenue for this quarter was $35.1 billion, up 92% year-over-year, surpassing the consensus estimate of $33.25 billion. Non-GAAP EPS was $0.81, up 103% year-over-year, exceeding the consensus estimate of $0.74. After the results were released, NVIDIA's stock price initially fell by over 5% in after-hours trading, but the decline gradually narrowed.

Key Highlights from NVIDIA's Financial Report That Investors Can't Miss

1. Data Center Business Doubles in Growth, Strong Demand for Blackwell Products

The data center business is the cornerstone of NVIDIA's performance. Benefiting from strong AI demand, the company's data center business grew 112% year-over-year to $30.77 billion this quarter, a 17% increase quarter-over-quarter, surpassing the consensus estimate of $29.14 billion. This was mainly due to strong demand from downstream customers for NVIDIA Hopper, GPUs, and networking platforms. 

Currently, the market is most concerned about the demand for Blackwell products, which the company says far exceeds supply. This quarter, the main product for the company's data center business is still the H200 chip with the Hopper architecture. Blackwell products began shipping in the fourth quarter, and current demand far exceeds supply. NVIDIA founder and CEO Jensen Huang said in a CNBC interview last month that customer demand for Blackwell products is "insane". In the earnings call, the company's CFO stated that Blackwell product revenue in the fourth quarter will exceed the previously estimated billions of dollars, and the profit margin for Blackwell products is expected to reach the mid-70s after full ramp-up.

In terms of AI chip competitiveness, NVIDIA's dominant position remains unchallenged for now. Compared to NVIDIA's B200, AMD's MI325X still shows a significant performance gap. Considering their similar mass production timelines, with superior performance and a more mature ecosystem, NVIDIA's B200 GPU chip remains the first choice for downstream customers.

The demand for AI chips remains very strong, with downstream tech giants continuously increasing capital expenditure for AI infrastructure. $Microsoft (MSFT.US)$, $Alphabet-C (GOOG.US)$, $Amazon (AMZN.US)$, and $Meta Platforms (META.US)$ are  $NVIDIA (NVDA.US)$'s main customers, and their latest financial results show that capital expenditure will further expand in 2025. Google expects spending to remain at the same level in the fourth quarter, with higher capital expenditure planned for 2025. Meta plans to continue investing heavily in AI, with capital expenditure expected to grow significantly in 2025. Microsoft expects capital expenditure to continue increasing in the fourth quarter, exceeding $20 billion, with year-over-year growth also expected next year. Amazon plans to invest about $75 billion in capital expenditure in 2024, with even more expected in 2025.

2. Gaming and Other Business Revenues Exceed Market Expectations

Apart from the data center business, NVIDIA's other business segments, though smaller in scale, all exceeded market expectations this quarter.

- This quarter, gaming and AI PC business revenue increased by 15% year-over-year to $3.28 billion, up 14% from the previous quarter.

- Professional visualization business revenue grew 17% year-over-year to $486 million this quarter, a 7% increase from the previous quarter.

- Automotive and robotics business revenue increased by 72% year-over-year to $449 million this quarter, up 30% from the previous quarter.

Excluding the data center segment, all of NVIDIA's business revenues achieved better-than-expected growth, demonstrating the gradual maturation of the company'sAIproducts across various fields.

3. Slight Decline in GrossMargin, Strong Growth in Free Cash Flow

Regarding gross margin, this quarter's Non-GAAP gross margin was 75%, slightly lower compared to last quarter (75.7%), and generally in line with the company's guidance median. NVIDIA has achieved two consecutive years of gross margin growth, mainly due to product demand far exceeding supply, with continuous price increases leading to sustained growth in gross margins. Currently, as NVIDIA's chip supply gradually catches up, and with increased research and development costs for Blackwell chips, changes in product mix have caused NVIDIA's gross margin to gradually decline. According to the company's performance guidance, the Non-GAAP gross margin is expected to further decrease to 73.5% in the fourth quarter.

This quarter, the company's control over operating expenses remained excellent, with the operating expense ratio remaining stable. The company's Non-GAAP operating profit increased by 101.4% year-over-year to $23.276 billion, with an operating profit margin of 66.35%, essentially on par with the previous quarter. This quarter's Non-GAAP EPS was $0.81, up 103% year-over-year.

In terms of cash flow, with the rapid growth of the company's net profit, free cash flow this quarter increased by 137.94% year-over-year to $16.787 billion. Regarding shareholder returns, after the release of the second quarter report, the company announced a new share repurchase program of around $50 billion, but without setting an expiration date. In the third quarter, the company spent $10.998 billion and $245 million on share repurchases and dividends, respectively. Currently, NVIDIA's shareholder return rate remains relatively low. Considering the strong growth in free cash flow, the market still expects the company to further increase the level of shareholder returns.

Summary

The company's performance this quarter remained impressive, with revenue and profit comprehensively exceeding market consensus expectations. The data center business continues to be the main driver of the company's performance. Benefiting from the strong growth in AI demand, the Blackwell products shipping in the fourth quarter are in short supply, providing assurance for the company's future performance. In terms of profit margins, the company's gross margin is gradually declining but is expected to stabilize after Blackwell enters full production. Regarding shareholder returns, the company's free cash flow is growing strongly, but current shareholder returns remain relatively low. The market expects the company to gradually increase the level of shareholder returns in the future.

According to the company's performance guidance, revenue for the fourth quarter of fiscal year 2025 is expected to be $37.5 billion, plus or minus 2%. GAAP and Non-GAAP gross margins are expected to be 73.0% and 73.5% respectively, plus or minus 50 basis points. GAAP and Non-GAAP operating expenses are expected to be approximately $4.8 billion and $3.4 billion, respectively.Currently, market concerns about NVIDIA mainly focus on whether unfavorable chip policies will be issued if Trump takes office, as well as supply chain risks. Investors are advised to continue paying attention to related developments.

In the world of investing, patience and insight are key to success. As Warren Buffett said, "We don't like the stock market, we like stocks in the stock market." In the face of NVIDIA's financial report, we are not just evaluating the performance of a quarter, but examining the value of a long-term investment. Investors should remember that short-term fluctuations are normal in the market, and long-term growth potential is what we should really focus on.

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