The biggest event of the week – and possibly the entire month – was Nvidia’s (NVDA) second-quarter earnings report released after the bell on Wednesday. The posterchild of the artificial intelligence (AI) megatrend saw solid numbers, but they were received with a mixed response.
I don’t want to get into the nitty gritty of Nvidia’s full report. You can look that up on your own. But I do feel that there are several numbers worth highlighting…
The first is revenue. The top line increased 122% year over year – led by demand for Nvidia’s data center products. The number is quite impressive at first glance. But it didn’t keep pace with the 200%-plus year-over-year growth that the company has experienced in the prior three quarters. And next quarter, revenue is expected to increase by just 80% from the third quarter last year.
The other number that weighed on the stock after the report was gross margin. That figure came in at 75.1%, which was well above the 70.1% reported last year but below last quarter’s 78.4%.
Gross margin is the percentage of Nvidia’s revenue that’s retained after taking out direct costs. You can see the surge in the company’s gross margin during last year’s AI boom, and some are concerned that it may be peaking. (Note: The chart below doesn’t include the dip to 75.1% in the second quarter.)
Those concerns may be overblown, though. During the conference call, Nvidia mentioned that it will begin ramping up production of its newest graphics processing unit (GPU) called Blackwell in the coming quarter. This could result in a revenue surge so that even if gross margin does settle in the mid-70% range, investors should be willing to push the stock back to new highs.
At the end of the day, we must remember that the AI transformation sweeping across every industry in the market is still in its early stages – and no megatrend goes straight up. There will always be doubters along the way who want to call the top. We saw this throughout the 1990s, when every major publication said that the internet would never infiltrate all homes.
Boy were they wrong.
As far as the future of AI goes, there’s no doubt in my mind that the technology we see today will pale in comparison to what will become custom five years from now. Most jobs will require the use of AI, and you won’t want to be the person who refuses to adapt.
If you feel like you missed out on Nvidia’s meteoric rise, don’t worry. There will be plenty more Nvidia opportunities in the future. Just keep an open mind and look to the future – not in the rearview mirror.
The past is the past. Now it’s time to focus on how AI will change our world in the future.
Here’s to the future,
Matt McCallEditor, Market Insights
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