AI darling Nvidia’s sales forecast fails to meet lofty expectations

San Francisco - Nvidia, the chipmaker at the heart of the artificial intelligence (AI) boom, gave a revenue forecast that fell short of some of the most optimistic estimates, stoking concern that its explosive growth is waning.

Moreover, Nvidia’s next big cash cow, the new Blackwell processor line-up, has proven more challenging to manufacture than anticipated.

“It was up against lofty and unsustainable expectations,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note.

Nvidia said third-quarter revenue will be about US$32.5 billion (S$42.4 billion). Though analysts had predicted US$31.9 billion on average, estimates ranged as high as US$37.9 billion.

The outlook threatens to tamp down an AI frenzy that has transformed Nvidia into the world’s second-most valuable company.

The chipmaker is the key beneficiary of a race to upgrade data centres to handle AI software, and its sales forecasts have become a barometer for that spending boom. 

Nvidia shares fell almost 7 per cent and lost US$200 billion in market value on Aug 28. They had more than doubled in 2024 through the Aug 28 close, following a gain of 239 per cent in 2023.

A handful of other AI-related companies shed around US$100 billion in combined value in New York overnight. Shares of Broadcom and Advanced Micro Devices lost about 2 per cent, while Microsoft and Amazon dipped almost 1 per cent.

In Asia on Aug 29, shares of South Korean memory maker SK Hynix dropped as much as 6.8 per cent, while those of Japanese testing equipment maker Advantest fell 3.6 per cent. The Bloomberg Asia-Pacific Semiconductors Index slid 1.6 per cent.

Heading into the announcement, there was concern that Nvidia was having problems with its new Blackwell design. The company acknowledged that there were production issues, saying that it was making changes to improve its manufacturing yield – the number of functioning chips that come out of factories.

At the same time, the company said it expects to bring in “several billion dollars” of revenue in the fourth quarter from the product.

“The anticipation for Blackwell is incredible,” chief executive officer Jensen Huang said in a statement.

Nvidia is coming off a string of quarters that shattered Wall Street expectations – even as analysts continued to raise estimates. But the amount of upside has been trending down. 

Most of Nvidia’s growth also has come from a small group of customers. About 40 per cent of Nvidia’s revenue stems from large data-centre operators – companies like Alphabet’s Google and Facebook owner Meta Platforms – which are pouring tens of billions of dollars into AI infrastructure. 

Though Meta and others have increased their capital expenditure budgets this earnings season, there has been concern that the amount of infrastructure being put in place exceeds current requirements.

That could lead to a bubble. But Nvidia’s Mr Huang has maintained that this is only the beginning of a new era for technology and the economy. 

Expectations were lofty. Nvidia has been the best-performing stock in the S&P 500 Index in 2024, eclipsing gains by all other semiconductor companies. At a market value of more than US$3 trillion, Nvidia is worth roughly the same amount as the next 10 largest chip firms combined. 

Nvidia made its name by selling video game cards but is now best known for so-called AI accelerators. These chips, derived from its graphics processors, are used to develop artificial intelligence software by bombarding it with information.

The process, known as training, makes AI models better at recognising and responding to real-world inputs. Nvidia’s components are also used in systems that then run the software, a stage known as inference, and help power services such as OpenAI’s ChatGPT. 

Last quarter’s results topped Wall Street projections, and Nvidia’s board approved an additional US$50 billion in stock buybacks. 

Nvidia’s revenue more than doubled to US$30 billion in the fiscal second quarter, which ended on July 28. Excluding certain items, profit was 68 US cents a share. Analysts had predicted sales of about US$28.9 billion and earnings of 64 US cents a share.

Nvidia got a jump on other chipmakers because its technology was well-suited to the needs of AI. But rivals are trying to catch up.

Advanced Micro Devices is now its closest competitor, with Intel – once the world’s biggest chipmaker – trailing further behind. Their combined revenue from the market is only about 5 per cent of Nvidia’s total. 

Nvidia’s data-centre division – now by far its largest source of sales – generated US$26.3 billion of revenue last quarter. Gaming chips provided US$2.9 billion. Analysts had given targets of US$25.1 billion for the data centre unit and US$2.79 billion for gaming.

Blackwell is expected to generate a fresh wave of growth when it rolls out in the coming months.

Analysts have downplayed concerns about delays, noting that the company still enjoys huge demand for its current generation of products. That could help Nvidia cope with any delays without a big financial hit.

Production of Blackwell is set to ramp up in the fourth quarter and continue into the next fiscal year, Nvidia said. BLOOMBERG