Only in the world of AI darling Nvidia (NVDA) are hypersonic growth rates not seemingly enough for the beloved stock's bulls.
Shares of the $3.2 trillion market cap chipmaker swung between modest gains and losses in pre-market trading on Thursday as investors digested a host of Nvidia earnings headlines. At the time of this writing, shares had reversed losses and were up nearly 3%.
In its earnings release on Wednesday evening, Nvidia said it expects gross profit margins of 70.6% to 71% in the first quarter as it contends with the production ramp-up of its new Blackwell chip.
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At close: February 26 at 4:00:01 PM EST
The margin outlook of 71% is "a little concerning," Benchmark Company managing director and senior research analyst Cody Acree said on chof360 Finance's Market Domination. "I think that's indicative of more pricing pressure, more competition from AMD (AMD), and more price sensitivity at their customers as they're investing their own dollars to create their own ASICs [application specific integrated circuits]."
Shares of chip rivals AMD (AMD), Broadcom (AVGO), and Qualcomm (QCOM) rose slightly in premarket trading.
Listen: why Nvidia may be unstoppable
Nvidia execs sought to push back on the bears on its earnings call. The bears have put forth a narrative that there will be a digestion period for AI investments by hyperscalers such as Amazon (AMZN) and Nvidia's margins may have peaked.
"We're going to have to continue to scale as demand is quite high, and customers are anxious and impatient to get their Blackwell systems," Nvidia founder and CEO Jensen Huang said. Huang teased several new powerful chips set to be unveiled at the company's March 17 GTC conference.
Added CFO Colette Kress: "Once our Blackwell fully rounds, we can improve our cost and our gross margin. So, we expect to probably be in the mid-70s later this year."
Lost in the intense focus on the outlook was another strong quarter from Nvidia.
Quarterly revenue rose 12% sequentially and 78% from the prior year. Datacenter sales more than doubled from the prior year. Earnings handily beat analyst estimates.
Here is what Wall Street is saying about Nvidia's quarter and outlook.
"Blackwell sales of $11 billion exceeded expectations (Citi $10 billion) as ramp seems to be on track now after hiccups last year and Nvidia expects strong growth in 2025. Inference demand is accelerating post reasoning models like DeepSeek as long reasoning requires 100x more compute per task vs one shot inference. While GTC is typically a catalyst for the stock, overhang of potential new China restrictions, semis tariffs, and gross margins will likely keep the stock range bound in the near term. For long-term investors willing to look through these concerns, valuation looks attractive at 23 times calendar year EPS and stock offers an attractive entry point."
Story Continues
"Management did not give an explicit first quarter Blackwell revenue target but we raise our Blackwell revenue higher to $20 billion (from $10 billion). However, management's first quarter revenue target of $43 billion was not enough to surprise the market given the strong fourth quarter Blackwell revenue beat and near-term China strength from H20 GPU shipments post the DeepSeek frenzy. First quarter gross margin guidance of 71% was also weaker than expected but management is still guiding for gross margin to recover to the mid-70% level by the end of FY26."
Rating: Reiterated Neutral
Price Target: $135, reiterated
"Despite demand in the near-term continuing to be strong, we still believe a decline in demand for Nvidia compute is inevitable as customers begin to scrutinize their return on investment on AI compute."
"We view Nvidia results and outlook positively, particularly given the better than expected Blackwell revenue outcome fourth quarter at about $11 billion. Data center segment revenue increased 16% sequentially and 93% year over year with data center compute up 18% sequentially and 2x year over year while Networking revenue declined 3% sequentially and roughly 8% year over year. We believe that the networking segment decline (two quarters in a row) is transitory as Blackwell systems ramp. In aggregate, we believe the pace of the Blackwell ramp is notable given expectations for strong growth in first quarter following the strength seen in fourth quarter within the context of technical issues early in the production cycle. We believe that the transition to B300/GB300 is likely to prove less challenging with the potential to drive accelerated revenue growth during the second half of the year. Management commentary on diverse customer adoption and cluster sizes (100K+ for many deployments) was notable given recent DeepSeek related concerns."
Rating: Reiterated Overweight
Price Target: $190, reiterated
"Nvidia is currently trading at 30 times consensus forward P/E. By comparison, peers are trading at a median consensus 2025 P/E multiple of 31 times. Nvidia remains uniquely positioned to benefit from AI/ML secular data center growth within the industry. With significant barriers to entry created by its CUDA software stack, we see limited competitive risks and expect Nvidia to continue to dominate one of the fastest growing workloads in cloud and enterprise. While early days, Omniverse represents an emerging software subscription revenue stream for metaverse applications that is likely to support further re-rating of the multiple, as it grows and scales."
Rating: Reiterated Overweight
Price Target: $170, reiterated
"Bottom line, the team continues to maintain a 1- 2 step lead ahead of competitors with its silicon/hardware/software platforms, and a strong ecosystem (4M CUDA software developers) and the team is further distancing itself with its aggressive cadence of new product launches and more product segmentation over time."
Programming note: I will be live with a special Nvidia themed episode of chof360 Finance's Opening Bid podcast today at 8:30 a.m. ET. You can easily watch it with our new "Streaming Now" section on website or on all major streaming platforms.
Brian Sozzi is chof360 Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email [email protected].
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