Nvidia's AI chip demand still booming but slowing sales growth worries investors

By Max A. Cherney, Arsheeya Bajwa

(Reuters) -Nvidia forecast fourth-quarter revenue slightly above estimates on Wednesday, but still failed to meet lofty expectations of some investors who have made it the world's most valuable firm. 

Shares of the Santa Clara, California-based company fell roughly 1% in extended trading.They had closed down 0.8% during the regular trading session. 

Nvidia (NASDAQ:NVDA ) is in the middle of launching its powerful Blackwell family of artificial-intelligence chips, which will weigh on the company's gross margins initially but improve over time.

The new line of processors has been embraced by Nvidia's customers and the company will exceed its initial projections of several billion dollars in sales of the processors in the fourth quarter, finance chief Colette Kress told analysts on a conference call on Wednesday. 

"We will deliver this quarter more Blackwells than we had previously estimated," CEO Jensen Huang said.

Initially the new line of chips will carry gross margins in the low 70% range, but will increase to the mid 70% range when production ramps up, Kress said.

The company forecast revenue of $37.5 billion, plus or minus 2% for the fourth quarter, compared with analysts' average estimate of $37.09 billion according to data compiled by LSEG.

Still a stunning rate of growth thanks to huge demand for the company's chips that make up the brains of complex generative AI systems, it marks a clear slowdown from previous quarters when Nvidia mostly posted sales that at least doubled.  

“The age of AI is in full steam, propelling a global shift to NVIDIA computing,” Huang said. “Demand for Hopper and anticipation for Blackwell - in full production - are incredible as foundation model makers scale pretraining, post-training and inference," he said, referring to two high-performing AI chips.

Nvidia's fourth-quarter forecast indicated the company's revenue growth will slow to roughly 69.5% from 94% in the third-quarter.

Expectations ran high ahead of the results, with Nvidia shares up more than 20% over the last two months and hitting an intraday record high on Monday. The stock has nearly quadrupled so far this year and is up more than ninefold over the last two years.

"Investors have become accustomed to huge beats from this company, but doing that is getting harder and harder," said Ryan Detrick, chief market strategist at Carson Group. "This was still a very solid report, but the truth is when the bar is this high it makes things just that much tougher." 

While demand is soaring for the company's chips, supply-chain snags have made it harder for Nvidia to report the big beats on revenue that have helped make it a Wall Street darling.

One of the bottlenecks for its chip supply has been the limited capacity for advanced manufacturing techniques at the company's manufacturing partner TSMC. 

The company recorded third-quarter adjusted earnings of 81 cents per share, compared with estimates of 75 cents per share.

Sales in the data-center segment, which accounts for a majority of Nvidia's revenue, grew 112% to $30.77 billion in the quarter ended Oct. 27. The segment had recorded growth of 154% in the prior quarter. 

Nvidia's sales are boosted by cloud companies' continued spending on its chips, as they expand data centers capable of handling generative AI's complex processing needs.

The company said it had fixed a design flaw with its Blackwell chips by changing the blueprints used by TSMC to manufacture it.



"Rumblings of potential supply chain issues are clearly causing some concerns," said analyst Bob O'Donnell of TECHnalysis Research.

The company said adjusted gross margin shrank to 75%.

Source: Investing.com