What Happened to NVIDIA’s Networking?

NVIDIA’s conference call is winding down and the stock is down about 1%. Here are the key takeaways from their earnings:

• Expect Wall Street to Focus on Growth Margins: Several questions on NVIDIA’s conference call focused on the company’s gross margins. Our take is that a slight dip in gross margins while Blackwell scales is to be expected and its a long-term positive that NVIDIA expects gross margins to remain in the mid-70s after Blackwell ramps.
• A New Scaling Law Emerges: Artificial intelligence researchers and journalists have been arguing in recent weeks about whether progress in AI has stalled. NVIDIA CEO Jensen Huang spent much of today’s call emphasizing his belief that new ‘reasoning’ scaling will continue to drive more scale and keep progress in foundational AI models moving.
• NVIDIA’s Next Earnings in Focus: If NVIDIA had said in their conference call they expected a more specific number – such as $5 to $10 billion in Blackwell sales this current quarter – we may have seen a much stronger reaction to the upside in shares tomorrow. Instead, we’ll get a better clue to the amount of revenue NVIDIA can deliver on Blackwell chips at scale when NVIDIA gives guidance next quarter. This quarter was always more ‘transitional,’ so it’s not surprising to see a more muted share price move after earnings.

We’ll continue updating this page as reactions and moving price targets come in from Wall Street but updates will slow. We thank you for following our coverage of NVIDIA’s Q3 earnings. Make sure to come back to 24/7 Wall St. where we post live analysis on market moves daily!

NVIDIA delivered strong revenue growth last quarter, let’s see how it compares to other Magnificent 7 stocks.

• NVIDIA: 94%
• Meta Platforms: +19%
• Microsoft: 16%
• Google: 15%
• Amazon: 11%
• Tesla: 8%
• Apple: 6%

NVIDIA’s prior generation of chips was known as ‘Hopper.’ Demand for GPUs is so rabid it has continued growing even as customers wait for large Blackwell orders. A question on NVIDIA’s conference call asked whether Hopper will grow next quarter and NVIDIA’s CFO was evasive. It looks like we may be at a peak in Hopper revenue with sales of Hopper chips down slightly next quarter.

As we predicted before today’s earnings, gross margins would be in focus during today’s call. NVIDIA has said they’ll see gross margins go down to the low-70s before returning to the mid-70s as Blackwell ramps.

Wall Street analysts are focused on exactly when NVIDIA gets back to the mid-70s.

Our call: the fact that NVIDIA will maintain margins at this level during Blackwell is the “big picture” that matters. Few investors would have predicted NVIDIA could have maintained margins at this level a year ago. 

Here’s an insane stat that shows how wild NVIDIA’s quarter was: NVIDIA’s profits last quarter were more than their entire revenue in the same quarter last year. 

As of 5:35 p.m. ET, NVIDIA’s stock is down about 1.6% after announcing earnings.

NVIDIA’s CFO Colette Kress has finished prepared remarks and we’re onto commentary from the analyst community.

• The first question is about whether scaling laws are slowing. Jensen Huang mentions scaling is now coming increasingly from post-training scaling. He also highlights OpenAI’s Strawberry release which ‘thinks’ to produce better answers.
• Jensen Huang is also highlighting the company’s strength in inferencing. There have been some questions about whether AI sales shifting from training to inferencing could weaken NVIDIA’s position, but Jensen Huang continues making an appeal that NVIDIA is just as well positioned to capture inference demand as it was to capture training demand.
• The second question from Goldman Sachs addresses whether NVIDIA is dealing with heating issues after several press reports earlier this week. Jensen answers the question by noting Blackwell’s production is ‘full steam’ and the company is focused on ways to increase production. In Jensen’s answer, he once again highlights his belief new ‘reasoning’ models are a massive change to fundamental models.
• Jensen gives a shout-out to some of the company’s key suppliers for Blackwell. Named companies include Dell (Nasdaq: DELL), Amphenol (Nasdaq: APH), and Vertiv (NYSE: VRT), among others.

NVIDIA’s conference call has started. We’ll be updating you with the most noteworthy quotes and information from NVIDIA’s call.

• Blackwell is in full production
• “Every customer is racing to be first to market… Blackwell is now in the hands of all our major customers.”
• “Blackwell demand is staggering.”
• “Our Data Center revenue in China grew sequentially. As a percentage of data center revenues, it remains below the onset of export controls.”
• NVIDIA deployments in India are expected to grow by 10X by the end of the year.
• We anticipate sequential networking revenue growth in Q4 

We’ll see if NVIDIA provides more details, but after seeing a sequential drop in networking last quarter, NVIDIA said on their earnings call they expect networking to grow sequentially again next quarter.

NVIDIA’s CFO also said the company is expected to exceed prior guidance of ‘several billion’ worth of Blackwell sales this next quarter.

While Blackwell is ramping the company expects gross margins in the low-70s, but once Blackwell is ramped NVIDIA expects gross margins to return to the mid-70s. 

NVIDIA’s Conference Call starts at 5 p.m. ET. It’s likely the stock will continue trading in a range of down about 1% to 3% until the call.

Once the call starts commentary on:

• Long-term margin expectations
• Blackwell revenue next quarter
• Long-term Blackwell revenue
• Networking growth rates last quarter and next year

Will all be closely studied and could move the stock’s price out of its current range.

Here’s NVIDIA’s CFO commentary on Blackwell’s launch:

“We completed a successful mask change for Blackwell, our next Data Center architecture, that improved production yields. Blackwell production shipments are scheduled to begin in the fourth quarter of fiscal 2025 and will continue to ramp into fiscal 2026. We will be shipping both Hopper and Blackwell systems in the fourth quarter of fiscal 2025 and beyond. Both Hopper and Blackwell systems have certain supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026.”

Once again, we’ll be watching if NVIDIA gives more specifics around revenue contributions from Blackwell next quarter in their earnings call.

NVIDIA’s Data Center group drives results, but it’s worth noting some other parts of their business are doing extremely well.

The company’s Automotive segment grew 72% from last year and 30% sequentially. Automotive produces $449 million in revenue, which is now only about 1.3% of revenue. However, the segment is growing as self-driving technology seems to be hitting an inflection point with Tesla focusing on a robotaxi strategy and Waymo seeing stellar growth and opening new markets.

As of 4:27 p.m. ET, NVIDIA’s stock is now back down 2%. Let’s take a look at what the company is guiding next quarter:

• Revenue: $37.5 billion
• Gross Margins (adjusted): 73% to 73.5%

That guidance is above Wall Street’s expectations of $37.1 billion but is likely below the ‘whisper number’ from buy-side investors. It’s likely the number one factor in NVIDIA trading down instead of up is some disappointment in next quarter’s revenue guide. 

We’ll watch for commentary from NVIDIA’s conference call on the level of Blackwell sales the company is expecting next quarter.

After initially trading down 5%, NVIDIA’s stock is now flat.

Some more information to digest form NVIDIA’s CFO commentary:

• Data Center revenue was up 112% from last year and 17% sequentially
• Data center compute revenue: $27.6 billion
• Data center networking: $3.1 billion

That networking number may raise some eyebrows as its down 15% sequentially. We’ll be watching for more commentary on networking on NVIDIA’s conference call.

• Revenue: $35.1 Billion
• EPS: $.81
• Gross Margins Next Quarter: 73 to 73.5% next quarter

The stock is initially down 5%.

One storyline to watch in this quarter’s earnings: whether expenses related to Blackwell’s re-tape-out could impact margins. That’s not a long-term concern, but could cause last quarter’s EPS number to look worse than investors may expect.

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Headed into today’s earnings, options markets were pricing in about an 8.4% move after today’s earnings. While that’s a big move for a stock NVIDIA’s size, it’s worth noting this is a smaller expectation than recent quarters.

NVIDIA’s numbers are expected to release at about 4:20 p.m. ET.

One of the big questions facing NVIDIA tonight is where they’ll guide next quarter’s earnings to. Here’s what Wall Street is expecting:

• Revenue Guidance: $37.1 Billion
• EPS: $.82
• Gross Margins (Adjusted): 73.5%

Once again, merely matching those numbers would likely lead to NVIDIA’s shares falling in trading tomorrow. The expectations of actual money managers (the ‘buy side’) are likely higher, in the $39 billion range.

Another number to watch when NVIDIA reports guidance is gross margin expectations. NVIDIA fell 6.4% the day after its last earnings report in large part due to fears of degrading margins.

After dropping to nearly $143 per share in trading earlier today, NVIDIA is rising ahead of the Nasdaq’s close. The stock is down about 1% with less than 10 minutes left until the closing bell.