Nvidia shares moved higher in early Thursday trading following a solid set of quarterly earnings that both underscored its dominance in the AI investment thesis and raised questions over the impact of ramping production of its top-of-the-line processors.
Nvidia (NVDA) topped Wall Street forecasts for its January-quarter earnings, the last of its fiscal year, by posting revenues of $39.3 billion a 78% surge compared to last year, and operating income of around $25.52 billion.
Revenues from its key data center segment, which houses the chips and processors that power AI systems for clients such as Meta Platforms (META) , Microsoft (MSFT) , Amazon (AMZN) and Google parent Alphabet (GOOGL) , nearly doubled from last year to $94.5 billion.
Blackwell revenues, meanwhile, came in at $11 billion, a much stronger-than-expected total for the new line of processors that have been beset by reports of underwhelming performance and supply chain constraints.
Even from those lofty tallies, Nvidia sees current-quarter revenues rising another 10% sequentially, to around $43 billion, amid what the company described as “rapidly rising demand for AI reasoning models and agents.”
“The demand for Blackwell is extraordinary. AI is evolving beyond perception and generative AI into reasoning,” Nvidia CEO Jensen Huang told investors last night.
Meeting that demand, however, is starting to pressure the group’s profit margins, exhibiting a rare weak spot for a company that has seen its stock rise more than 1,800% over the past five years as its established its dominance on the market for AI chips.
Blackwell ramp costs
Ramping its new line of Blackwell processors, which are likely to overtake its legacy Hopper line in terms of overall revenues in the coming months, will like shave around 3 points from its gross profit margin, Nvidia indicated, with expectations in the region of 71%.
“Initially, we are focused on expediting the manufacturing of Blackwell systems to meet strong customer demand as they race to build out Blackwell infrastructure,” finance chief Colette Kress told investors on a conference call late Wednesday. “When fully ramped, we have many opportunities to improve the cost, and gross margin will improve and return to the mid-70s, late this fiscal year.”
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While market reaction to the earnings report was mixed, with an initial selloff in after-hours trading that has evolved into a modest premarket gain, analysts on Wall Street have been largely impressed by the breadth of the report and the signals it provides for longer-term profit growth.
UBS analyst Timothy Arcuri, who reiterated hits – ‘buy’ rating and $185 price target on Nvidia stock in a note published Thursday, said that while there were a “couple of things to pick at”, the report was reiterate “good enough to keep the debate moving in a positive direction”.
“The most important thing is that Blackwell is ramping ahead of plan (even better than our $9 billion preview) and we also like that the company was willing to put a stake in the ground on (operating expenses) growth this year – historically a strong indicator of confidence in growth headroom,” Arcuri and his team wrote.
Profit margins in focus
“The biggest nit might be gross margin, which was guided a little below expectations,” Arcuri added. “However, we think this is entirely due to a big shift in mix in the April quarter, where Blackwell should be >60% of revenue and the company recommitted to being back in the mid-70s by year-end.”
Morgan Stanley analyst Joseph Moore, who lifted his Nvidia price target by $10, taking it to $162 per share, said last night’s update represents a “transitional quarter” in a “remarkable growth phase”.
“It wasn’t perfect, mostly due to continued gross margin pressures, but we think that reflects challenges with GB200 which were well documented – and which from our checks are well on their way to improving,” Moore and his team wrote.
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“We believe that Blackwell demand remains exceptional through the end of the year, a fact reinforced by nearly every earnings call from every spender and every tweet from key technologists,” he added. “The theme of scaling inference workloads is resonating, and counter to fears, it does not appear to be having an impact on training.”
Bernstein Stacy Rasgon, meanwhile, called last night’s report “relatively quiet”, given the ‘tremendous angst going into these results around what management might say regarding outlook given a substantial amount of supply chain noise and worries over the company’s ability to ramp Blackwell.”
DeepSeek impact
Gross margins at 71% might be a minor nitpick, but we won’t argue that getting product out the door should be the primary consideration at the moment given demand seemingly remains off the charts,” said Rasgon, who lifted his Nvidia price target by $10 to $185 per share.
“And overall, the secular story around that demand seems as robust as ever as the market moves from pre-training to a post-training world, with management remaining bullish that compute requirements are only growing stronger from here,” he added.
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Nvidia CEO Jensen Huang also addressed the impact that China-based DeepSeek’s AI model has had both on the broader tech market narrative and the demand for high-end chips from the group’s biggest customers.
“DeepSeek-R1 has ignited global enthusiasm. It’s an excellent innovation. But even more importantly, it has open-sourced a world-class reasoning AI model,” Huang said.
“We’re at the beginning of reasoning AI and inference time scaling. But we’re just at the start of the age of AI, multimodal AIs, enterprise AI sovereign AI and physical AI are right around the corner,” he added. “We will grow strongly in 2025. Going forward, data centers will dedicate most of capex to accelerated computing and AI.”
Nvidia shares were marked 2.07% higher in premarket trading to indicate an opening bell price of $134.01 each, a move that would still leave the stock down around 3% for the year.
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