Nvidia, a global leader in the semiconductor industry, has released its highly anticipated financial results for the third quarter of this year, once again exceeding analysts’ expectations but the markets seem worried that its growth is slowing, and investors reacted with mixed emotions, share prices declining in the after-hours, after the results.
The results were primarily driven by the boom in artificial intelligence technologies. However, it became evident that the pace of growth is decreasing, writes eToro analyst for Romania, Bogdan Maioreanu.
Nvidia’s third-quarter results surpassed analysts’ expectations, the company reported record revenues of $35.1 billion, a year-over-year increase of 94%, but the market is noting that the pace of revenue growth has been slowing in recent quarters. It is worth mentioning, however, that most companies in the market would aspire to grow as rapidly as Nvidia has so far. At the end of the first quarter of this year, the company’s annual revenue growth rate was an impressive 208.2%; at the end of the second quarter, it was 194.74%; and by the third quarter, the growth rate had slowed to 152.36%. Such deceleration is a natural consequence of revenues reaching higher levels but keeping the same growth pace is becoming increasingly challenging.
The main driver of Nvidia’s success remains the data center segment, which generated $30.8 billion in revenue in the third quarter, representing a 112% year-over-year increase. These are 88% of total revenues and over the last four years the segment increased 16 times going from $1,9 billion (a bit over 40% of revenues) to the current value. A key growth factor is the demand for chips based on the Hopper architecture and the development of next-generation AI infrastructure. Tech companies are investing billions of dollars in expanding data centers, enabling the training and deployment of advanced AI models.
The future of this segment is tied to Blackwell processors, the successors to Hopper chips, which are expected to be more efficient and energy-saving. However, reports of overheating issues and potential production challenges may affect the company’s future performance. Despite this, the company said it sees the demand for Blackwell chips exceeding supply for several next quarters. Also they expect “certain supply constraints” for the deliveries to follow. Additionally, Nvidia remains dependent on demand from other large tech companies, although it appears to be reducing this reliance in recent quarters.
Since the beginning of the year, Nvidia’s stock has risen by 195%, and its market capitalization has reached $3.61 trillion, more than the combined market cap of other 11 chip companies that include Intel, AMD, Micron, Broadcom, ARM, Qualcomm and also the two leaders in chips manufacturing technologies – ASML and Taiwan Semiconductor Manufacturing Company. Nvidia also accounts for approximately 25% of this year’s gains in the S&P 500 index. The market’s initial reaction to the results was negative, with shares falling over 2% in after-hours trading.
This suggests that some investors are concerned that the company’s valuation might be too high relative to its potential growth rate in the coming quarters. However, it doesn’t change the long-term outlook in any way and the company seems to overcome investor’s concerns every quarter. Also, it appears that the investing appetite for companies involved in the AI space is still here. According to the latest eToro Retail Investor Beat survey, 30% of global retail investors surveyed have already invested in the AI area and 32% said they haven’t invested yet but plan to. With Romanian investors the percentages are even higher, with 35% already invested and 47% interested for the future.
