Semiconductor Superbowl

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Nvidia is the number one most monetizable company in the hottest area of the market right now.

If you want to point to one stock that is the market right now, Nvidia is it.

They are at the forefront of the boom in Artificial Intelligence. The rapid technical advancements that all AI models are making right now would not be possible without Nvidia’s chips. We simply wouldn’t have the compute capacity required.

Nvidia’s earnings not only shed light on the company themselves, but also on the entire tech industry. What they’re seeing from the model usage and demand side are readthroughs for the other megacap tech companies. We are now back to higher concentration amongst the MAG7 when it comes to the overall market.

So saying this print was important is an understatement.

Going into the print

The four most important things to watch for in Nvidia’s earnings were the revenue in the quarter, the guide for revenue next quarter, profitability margins, and any commentary on delay in the Blackwell series of GPUs.

Usually when companies “beat” or “miss” earnings, media refers to consensus estimates. With Nvidia it is a little bit different. Consensus (sell-side) estimates are artificially low here so that the company can beat these numbers. So what matters is the buy-side (whisper) numbers.

Going into the print, the buy-side was looking for $30B in revenue this quarter, and a $33B rev guide for next quarter.

Revenue figures matter to see how well the sales are going on the current series of chips.

On the profitability side, the buyside bogey was for 76.2% gross margins and $0.69 EPS for the quarter.

These margins matter because they dictate just how much pricing power Nvidia still has in the ecosystem.

The last (and probably most important) thing to watch on the call is any language around the delay in the Blackwell series of Chips. Nvidia now aims for a cadence of releasing the next version of its chip every year. Any delay in this cadence can cause concern for recognizing revenue in any given quarter. A significant delay could be a disaster.

However, most analysts believed that rumours circling of a potential delay could be overblown. They point to the facts that Nvidia is a dominant player in the supply chain, they can backstop any delay with existing on-the-run chips, and also that other supply chain companies have provided positive language in terms of working through this delay.

The options market was pricing a 10% move into the print.

So how’d they do?

Quarter Review

Overall, the quarter was solid, and the long-term thesis for Nvidia has remained unchanged.

By the Numbers (F2Q25)

• Revenue (v. $27.44~28.56b guide; $29.85b Buyside Bar): $30b

• Data Center Revenue (v. $22.6b last Q; $25.52b Buyside Bar): $26.3b

• Non-GAAP Gross Margin (v. 75.5% guide; 76.2% Buyside Bar): 75.7%

• EPS (v. $0.64 consensus; $0.694 Buyside Bar): $0.68

• F3Q25 Revenue Guide (v.$31.41b consensus; $32.95b Buyside Bar): $32.5b

There is no doubt that this was another impressive quarter. However, these results didn’t quite live up to the monster beats that we’ve come to expect. The chart below shows that the upside surprises across Sales, Gross Margin, and EPS have been getting smaller and smaller.

So is Nvidia’s business model suffering? No. Earnings are just getting more and more predictable as analysts can finally assess the demand more accurately.

Blackwell Delay

Colette Kress, Nvidia’s CFO provided commentary on the Blackwell issues:

“We executed a change to the Blackwell GPU mask to improve production yield. Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal 2026. In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue."

Inventory purchase commitments up +48% quarter-over-quarter, a strong indicator of forward growth.

Nvidia is an incredibly dominant force when it comes to the overall supply chain and will work through the technical issue. In the meantime, the Hopper series chips will serve as a backstop revenue bridge between series.

Margin Profile

The negative surprise was the lower gross margin profile exiting the year. Nvidia’s CFO implied low-70s exiting the year, likely driven by a combination of higher ramp-up costs and lower production yields of Blackwell. This number should improver with increased yields as well as better cost absorption.

However, this is a number to watch closely because any weakness will indicate that Nvidia might not have the pricing power it used to due to two factors 1) Startups making solid competitive alternatives; and 2) Megacap hyperscalers building their own silicon.

Looking Forward:

At the end of the day, Nvidia is the poster child when it comes to the hype in the current AI super cycle. But this hype is far from unjustified. I would be hard pressed to find any company that has grown revenue this quickly from this large of a base while dropping so much to bottom line. The profitability metrics are off the charts.

However, Capex cycles do not last forever. We need to see the “R” in the ROI calculation when it comes to monetizing the end product of AI. Megcaps are already well on their way to gaining cost efficiencies, but they also need to ramp tangible revenue in order to justify all this heavy Capex spend.

As long as the company can continue to deliver, the king deserves the crown.

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Cheers,

The GRIT Alpha Team

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