In the past few quarters, the market has become accustomed to Nvidia's continuous growth myth: the unexpected surge in performance has driven up the company's stock price and market value. But after Nvidia delivered outstanding performance for this quarter, this narrative changed and investors' high spirits slowed down.
After the market closed on August 28th local time, Nvidia released its second quarter financial performance report for the year ended July 28th, 2024. According to the financial report, Nvidia's revenue in the second quarter reached a new high of $30 billion, a year-on-year increase of 122%, higher than analysts' expectations of $28.7 billion. Adjusted earnings per share were $0.68, exceeding the expected $0.64 per share.
The data center business remains Nvidia's largest source of revenue, covering software and hardware products such as GPU chips and AI servers. In the second quarter, this revenue recorded a record high of $26.3 billion, a year-on-year increase of 154%, higher than the estimated $25.1 billion.
Colette Kress, Executive Vice President and Chief Financial Officer of Nvidia, mentioned during a conference call that data center revenue in China made a significant contribution to the total revenue of the business in the second quarter, recording a month on month growth. Although it is still lower than the level before the implementation of export controls in the United States, Nvidia still expects the Chinese market to be very competitive in the future.
Nvidia is seen as the biggest beneficiary of this AI wave, with tech companies such as Microsoft, Google, and Meta competing to purchase its high-performance GPU chips for training and running AI models. These giant clients contribute about 45% of Nvidia's revenue sources, but Nvidia is also seeking a more diverse customer base. The management emphasized multiple times during the conference call that as governments around the world gradually realize the importance of establishing AI infrastructure, they will further expand their sovereign AI opportunities.
But investors are beginning to question whether the hundreds of billions of dollars invested by companies in AI infrastructure can translate into substantial returns - a crucial question that no one, including Nvidia and its founder Huang Renxun, has been able to provide a convincing answer to.
In the past month, large technology companies in the United States have successively released their latest quarterly financial reports. While the growth rate of AI related businesses did not meet expectations, most of them stated that they will continue to increase their capital expenditures on AI. Senior executives of companies such as Google and Meta have stated that they believe the risk of underinvestment in AI far outweighs the risk of overinvestment. Microsoft executives also stated that the company's huge investments in cloud computing and AI may take 15 years or even longer to reap returns.
In response to this, Huang Renxun, founder and CEO of Nvidia, simply responded during the conference call, saying, "Those who invest in Nvidia infrastructure are immediately receiving returns, which is currently the highest return on investment for computing and infrastructure investments
Huang Renxun once again explained with his unique concept of "CEO mathematics", which is "the more you buy, the more you save". He stated that based on Nvidia's infrastructure, companies can achieve cost reduction and efficiency improvement in data processing. Meanwhile, many companies can rent computing power to generative AI enterprises to achieve better investment returns. For companies that want to enhance their business, Nvidia can also help with their advertising systems, recommendation algorithms, search engines, content platforms, and other aspects.
When asked by analysts whether tech companies' investment in AI is sustainable, Huang Renxun spent nearly 10 minutes elaborating on his "AI faith". He stated that there is currently a transition from general computing to accelerated computing, and the demand for computing will significantly increase. With the help of NVIDIA GPUs, the generative AI revolution has exploded. At present, applications such as ChatGPT are just the tip of the iceberg. Generative AI can actually affect the world's largest computing system, and its development momentum is accelerating.
Although the Q2 performance was still impressive, Nvidia's stock price fell after the release of its financial report due to news that its Q3 guidance did not meet expectations and the launch of the new generation AI chip Blackwell was hindered. After the performance meeting, the decline expanded to 8% at one point. The stock prices of some AI related companies have also declined in after hours trading, with important Nvidia clients such as Microsoft, Alphabet, Amazon, and Meta experiencing a slight drop of less than 1%, and Nvidia's competitor, another chip manufacturer AMD, falling more than 3.7%.
According to Nvidia's forecast, the third quarter revenue will reach $32.5 billion, with a fluctuation of 2%. Analysts' average expectation for this is $31.8 billion, with the highest estimate reaching $37.9 billion. The adjusted gross profit margin will reach 75%, with a fluctuation of 50 basis points, which is lower than the average forecast of 75.5%.
Previously, media reports suggested that Nvidia's highly anticipated Blackwell chip may be delayed in release due to design flaws. Huang Renxun did not specify the extent of the delay during the conference call, only stating that the design changes have been completed and there is no need to make functional changes. Nvidia plans to mass produce and ship Blackwell in the fourth quarter, which will bring in billions of dollars in revenue.
After the phone call, Huang Renxun added in an interview with Bloomberg that a significant amount of resources have been invested in improving Blackwell to ensure that the chip achieves outstanding performance. At the same time, it is emphasized that with the continuous increase in Blackwell production, Nvidia is expected to continue its strong growth momentum next year.
Since the beginning of this year, Nvidia's stock price has risen by over 154%, with a market value exceeding $3 trillion. However, with the rise of the "AI foam theory", Nvidia's share price fell sharply in July and early August, and recently rebounded to about 5% lower than the historical high in June.