Written by Max A. Cherny, Arshia Bajwa, and Stephen Nellis
SAN FRANCISCO (Reuters) – Nvidia on Wednesday forecast its slowest revenue growth in seven quarters, with the artificial intelligence chip maker failing to meet the high expectations of some investors who made it the world’s most valuable company.
Shares of the Santa Clara, California-based company fell 5% after it announced results but quickly pared losses to trade down 2.5% after hours. During the regular session they closed down 0.8%.
Expectations were high ahead of the results, with Nvidia shares rising more than 20% over the past two months and hitting an intraday record on Monday. The stock price has nearly quadrupled so far this year, and has risen more than ninefold over the past two years, giving it a market value of $3.6 trillion.
Nvidia is in the middle of launching its powerful Blackwell family of AI chips, which will impact the company’s gross margins initially but improve over time.
Nvidia customers have embraced the new line of processors and the company will exceed its initial forecast of several billion dollars in processor sales in the fourth quarter, Chief Financial Officer Colette Kress told analysts on a conference call Wednesday.
Asked about media reports that a pioneering liquid-cooled server containing 72 of the new chips had overheating issues during initial testing, CEO Jensen Huang said there were no issues and that customers such as Microsoft, Oracle and CoreWeave were implementing the systems.
“There are no issues with our Grace Blackwell liquid cooling systems,” Hwang told Reuters. “Engineering is not easy at all, because what we do is difficult, but we are doing well.”
Chris said its Blackwell family of chips will initially achieve gross margins in the low 70% range, but will rise to the mid-70% range when production ramps up.
The company expects 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.
While it’s still an impressive growth rate thanks to huge demand for the company’s chips that make up the brains of complex generative AI systems, it represents a clear slowdown from previous quarters when Nvidia mostly posted sales that at least doubled.
Nvidia’s Q4 forecast indicated that the company’s revenue growth will slow to about 69.5% from 94% in the third quarter.
“Investors have become accustomed to this company’s significant outperformance, but it’s becoming harder and harder to do so,” said Ryan Detrick, chief market strategist at Carson Group. “This is still a very strong report, but the reality is that when the bar is that high, it makes things that much more difficult.”
However, the slowdown in revenue growth masks the massive demand for the company’s AI chips, which dominate the market.
Supply chain hurdles have made it difficult for Nvidia to report the large fluctuations in revenue that helped make it a Wall Street darling. But growth could rebound again if the company’s margins exceed 75%, said Brandon Huff, an IDC analyst.
One bottleneck to chip supplies has been the limited capacity of advanced manufacturing technologies at TSMC, the company’s manufacturing partner.
Huang declined to comment on specific production issues with TSMC, but also told Reuters: “As we ramp up our (Blackwell) production, we will continue to ramp up more production lines, continue to improve our production, and improve cycle time.” This will improve our outcomes.”
Yield refers to the number of working chips per chip. The company said it fixed a design flaw in its Blackwell chips by changing the blueprints TSMC uses to manufacture them.
TSMC shares fell about 1% in early Asian trading on Thursday.
Nvidia reported third-quarter adjusted earnings of 81 cents per share, compared to estimates of 75 cents per share.
Sales in the data center segment, which accounts for the majority of Nvidia’s revenue, grew 112% to $30.77 billion in the quarter ended October 27. The sector recorded a growth of 154% in the previous quarter.
Nvidia’s sales are being boosted by cloud companies’ continued spending on its chips, as it expands data centers capable of handling the complex processing needs of generative artificial intelligence.
The company said its adjusted gross profit margin shrank to 75%.
(Reporting by Arshiya Bajwa in Bengaluru, Stephen Nellis and Max A. Cherney in San Francisco; Additional reporting by Noel Randewich in Oakland, California; Editing by Sayantani Ghosh, Matthew Lewis and Jamie Freed)