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NVIDIA's Q2 Earnings Beat: Can Blackwell Delay Drag Down NVDA Stock?
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NVIDIA Corporation (NVDA - Free Report) reported better-than-expected results for second-quarter fiscal 2025. The chip maker reported non-GAAP earnings of 68 cents per share for the aforementioned quarter, which beat the Zacks Consensus Estimate by 6.3%. The reported figure soared 152% year over year while increasing 11% sequentially. Higher revenues, as well as improvement in gross margin and operating margin, drove the robust increase in earnings.
Fiscal second-quarter revenues climbed 122% and increased 15% sequentially to $30.04 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market and higher sales across the Gaming, Professional Visualization and Automotive end markets. The top line also beat the consensus mark of $28.42 billion.
NVIDIA, a heavyweight in the semiconductor industry, has seen its stock soar 153.7% year to date, outperforming the Zacks Semiconductor – General industry’s gain of 112.1%. However, an expected delay in delivering the highly anticipated AI chip – Blackwell – might weigh on the NVDA stock’s near-term performance. A sequential decline in non-GAAP net profit margin, following eight consecutive quarters of uptrend, also raises concerns over the company’s ability to maintain its profitability.
Image Source: Zacks Investment Research
Let’s first discuss second-quarter performance in detail.
NVIDIA Segment Details
NVIDIA reports revenues under two segments — Graphics and Compute & Networking.
Graphics includes GeForce GPUs for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing as well as automotive platforms for infotainment systems.
Graphics accounted for 12% of fiscal second-quarter revenues. The segment’s top line soared 16% year over year while increasing 7% sequentially to $3.59 billion. Our fiscal fourth-quarter revenue estimates for the Graphics segment was pegged at $3.81 billion.
Compute & Networking represented 88% of fiscal second-quarter revenues. The segment comprises the Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics as well as other embedded platforms.
Compute & Networking revenues soared 154% year over year and 17% sequentially to $26.45 billion. Our fiscal fourth-quarter revenue estimate for this segment was pegged at $24.33 billion.
NVIDIA Market Platform Top-Line Details
Based on the market platform, revenues from Data Center (87.4% of revenues) jumped 154% year over year and 16% from the previous quarter to $26.27 billion. This robust rise was mainly driven by higher shipments of the Hopper GPU computing platform that is used for the training and inference of large language models, recommendation engines and generative AI applications. Our estimate for this end-market’s fiscal second-quarter revenues was pegged at $24.51 billion.
NVIDIA witnessed strong demand for its chips used in the Data Center by all customers in both compute and networking markets. During the fiscal second quarter, large cloud providers represented 45% of Data Center revenues while the remaining stemmed from consumer internet and enterprise companies.
Gaming revenues increased 16% year over year and 9% sequentially at $2.88 billion, accounting for 9.6% of the total revenues. The year-over-year surge reflects increased sales of its GeForce RTX 40 series family of GPUs (graphics processing units) and game console system-on-chips. Our estimate for the Gaming end-market’s second-quarter revenues was pegged at $2.77 billion.
Professional Visualization revenues (1.5% of revenues) increased 20% year over year and 6% sequentially to $454 million. The increase was primarily driven by the ramp of RTX GPU workstations based on the Ada architecture. Our estimate for the Professional Visualization end-market’s fiscal second-quarter revenues was pegged at $475.7 million.
Automotive sales (1.2% of revenues) in the reported quarter totaled $346 million, up 37% on a year-over-year basis and 5% sequentially. The increase was mainly driven by AI cockpit solutions and self-driving platforms. OEM and Other revenues (0.3% of revenues) were up 33% year over year and 13% sequentially to $88 million. Our estimate for the Automotive and OEM end markets’ fiscal second-quarter revenues were pegged at $294.6 million and $86.4 million, respectively.
NVDA Operating Details
NVIDIA’s non-GAAP gross margin expanded to 75.7% from 71.2% in the year-ago quarter, driven by higher Data Center sales and benefits from favorable component costs. However, non-GAAP gross margin contracted 320 basis points (bps) sequentially due to a higher mix of new products within the Data Center and inventory provisions for low-yielding Blackwell material.
Non-GAAP operating expenses increased 52% year over year and 12% sequentially to $2.21 billion. The increase was due to higher compensations and related benefits. However, as a percentage of total revenue, non-GAAP operating expenses declined to 9.3% from 13.6% in the year-ago quarter and 9.6% in the previous quarter.
The non-GAAP operating income jumped 156% year over year and 10% sequentially to $19.94 billion, driven by higher revenues. Non-GAAP operating margin improved by 880 bps to 66.4% from the year-ago quarter’s 57.6% due to higher gross margin and lower operating expenses as a percentage of revenues. Sequentially, non-GAAP operating income contracted 290 bps due to a reduction in gross margin partially offset by lower operating expenses as a percentage of revenues.
NVIDIA’s non-GAAP net income margin of 56.4% for the second quarter improved 650 bps year over year but contracted 210 bps sequentially. This was the first time the company witnessed a sequential contraction in net income margin following eight quarters of improvement.
Balance Sheet and Cash Flow
As of July 28, 2024, NVDA’s cash, cash equivalents and marketable securities were $34.8 billion, up from $31.44 billion as of April 28. As of July 28, the total long-term debt was $8.46 billion, unchanged sequentially.
NVIDIA generated $14.5 billion in operating cash flow, up from the year-ago quarter’s $6.3 billion but down from the previous quarter’s $15.3 billion. In the first half of fiscal 2025, it generated an operating cash flow of $29.8 billion. NVIDIA generated a free cash flow of $13.48 billion in the second quarter and $28.42 billion in the first half of fiscal 2025.
In the fiscal second quarter, the company returned $246 million to shareholders through dividend payouts and repurchased stocks worth $7.16 billion. In the first half of fiscal 2025, the company paid out $344 million in dividends and bought back stocks worth $14.9 billion.
At the end of the second quarter, it had a remaining share-repurchase authorization of approximately $7.5 billion. The board of directors recently approved a new $50 billion share repurchase authorization, bringing the total authorization to $57.5 billion, which has no expiration time.
NVDA Third-Quarter Guidance
For the third quarter of fiscal 2025, NVIDIA anticipates revenues of $32.5 billion (+/-2%), higher than the Zacks Consensus Estimate of $30.97 billion.
The non-GAAP gross margin is projected at 75% (+/-50 bps). Non-GAAP operating expenses are estimated at $3 billion.
NVIDIA’s Blackwell Update
During its second-quarter earnings conference call, NVIDIA revealed that it has executed a change to the Blackwell GPU mask to improve production yield and has shipped the same in the second quarter. It is expected to start ramping up the production of Blackwell in the fourth quarter of fiscal 2025 and continue through fiscal 2026.
Earlier, NVIDIA stated that the ramp-up of Blackwell production will begin in 2024. However, the latest update signals that the production ramp-up could now start by the end of January 2025.
Earlier in August 2024, The Information had first reported that NVIDIA could encounter delays in delivering Blackwell chips. According to the report, these delays are due to design flaws and could set back delivery by three months or more, affecting major customers like Microsoft Corporation (MSFT - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Alphabet and Meta Platforms. Such delays could push potential customers toward competitors like Advanced Micro Devices, Inc. (AMD - Free Report) , further denting NVIDIA's near-term outlook.
Image: Bigstock
NVIDIA's Q2 Earnings Beat: Can Blackwell Delay Drag Down NVDA Stock?
NVIDIA Corporation (NVDA - Free Report) reported better-than-expected results for second-quarter fiscal 2025. The chip maker reported non-GAAP earnings of 68 cents per share for the aforementioned quarter, which beat the Zacks Consensus Estimate by 6.3%. The reported figure soared 152% year over year while increasing 11% sequentially. Higher revenues, as well as improvement in gross margin and operating margin, drove the robust increase in earnings.
Fiscal second-quarter revenues climbed 122% and increased 15% sequentially to $30.04 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market and higher sales across the Gaming, Professional Visualization and Automotive end markets. The top line also beat the consensus mark of $28.42 billion.
NVIDIA, a heavyweight in the semiconductor industry, has seen its stock soar 153.7% year to date, outperforming the Zacks Semiconductor – General industry’s gain of 112.1%. However, an expected delay in delivering the highly anticipated AI chip – Blackwell – might weigh on the NVDA stock’s near-term performance. A sequential decline in non-GAAP net profit margin, following eight consecutive quarters of uptrend, also raises concerns over the company’s ability to maintain its profitability.
Image Source: Zacks Investment Research
Let’s first discuss second-quarter performance in detail.
NVIDIA Segment Details
NVIDIA reports revenues under two segments — Graphics and Compute & Networking.
Graphics includes GeForce GPUs for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing as well as automotive platforms for infotainment systems.
Graphics accounted for 12% of fiscal second-quarter revenues. The segment’s top line soared 16% year over year while increasing 7% sequentially to $3.59 billion. Our fiscal fourth-quarter revenue estimates for the Graphics segment was pegged at $3.81 billion.
Compute & Networking represented 88% of fiscal second-quarter revenues. The segment comprises the Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics as well as other embedded platforms.
Compute & Networking revenues soared 154% year over year and 17% sequentially to $26.45 billion. Our fiscal fourth-quarter revenue estimate for this segment was pegged at $24.33 billion.
NVIDIA Market Platform Top-Line Details
Based on the market platform, revenues from Data Center (87.4% of revenues) jumped 154% year over year and 16% from the previous quarter to $26.27 billion. This robust rise was mainly driven by higher shipments of the Hopper GPU computing platform that is used for the training and inference of large language models, recommendation engines and generative AI applications. Our estimate for this end-market’s fiscal second-quarter revenues was pegged at $24.51 billion.
NVIDIA witnessed strong demand for its chips used in the Data Center by all customers in both compute and networking markets. During the fiscal second quarter, large cloud providers represented 45% of Data Center revenues while the remaining stemmed from consumer internet and enterprise companies.
Gaming revenues increased 16% year over year and 9% sequentially at $2.88 billion, accounting for 9.6% of the total revenues. The year-over-year surge reflects increased sales of its GeForce RTX 40 series family of GPUs (graphics processing units) and game console system-on-chips. Our estimate for the Gaming end-market’s second-quarter revenues was pegged at $2.77 billion.
Professional Visualization revenues (1.5% of revenues) increased 20% year over year and 6% sequentially to $454 million. The increase was primarily driven by the ramp of RTX GPU workstations based on the Ada architecture. Our estimate for the Professional Visualization end-market’s fiscal second-quarter revenues was pegged at $475.7 million.
Automotive sales (1.2% of revenues) in the reported quarter totaled $346 million, up 37% on a year-over-year basis and 5% sequentially. The increase was mainly driven by AI cockpit solutions and self-driving platforms. OEM and Other revenues (0.3% of revenues) were up 33% year over year and 13% sequentially to $88 million. Our estimate for the Automotive and OEM end markets’ fiscal second-quarter revenues were pegged at $294.6 million and $86.4 million, respectively.
NVDA Operating Details
NVIDIA’s non-GAAP gross margin expanded to 75.7% from 71.2% in the year-ago quarter, driven by higher Data Center sales and benefits from favorable component costs. However, non-GAAP gross margin contracted 320 basis points (bps) sequentially due to a higher mix of new products within the Data Center and inventory provisions for low-yielding Blackwell material.
Non-GAAP operating expenses increased 52% year over year and 12% sequentially to $2.21 billion. The increase was due to higher compensations and related benefits. However, as a percentage of total revenue, non-GAAP operating expenses declined to 9.3% from 13.6% in the year-ago quarter and 9.6% in the previous quarter.
The non-GAAP operating income jumped 156% year over year and 10% sequentially to $19.94 billion, driven by higher revenues. Non-GAAP operating margin improved by 880 bps to 66.4% from the year-ago quarter’s 57.6% due to higher gross margin and lower operating expenses as a percentage of revenues. Sequentially, non-GAAP operating income contracted 290 bps due to a reduction in gross margin partially offset by lower operating expenses as a percentage of revenues.
NVIDIA’s non-GAAP net income margin of 56.4% for the second quarter improved 650 bps year over year but contracted 210 bps sequentially. This was the first time the company witnessed a sequential contraction in net income margin following eight quarters of improvement.
Balance Sheet and Cash Flow
As of July 28, 2024, NVDA’s cash, cash equivalents and marketable securities were $34.8 billion, up from $31.44 billion as of April 28. As of July 28, the total long-term debt was $8.46 billion, unchanged sequentially.
NVIDIA generated $14.5 billion in operating cash flow, up from the year-ago quarter’s $6.3 billion but down from the previous quarter’s $15.3 billion. In the first half of fiscal 2025, it generated an operating cash flow of $29.8 billion. NVIDIA generated a free cash flow of $13.48 billion in the second quarter and $28.42 billion in the first half of fiscal 2025.
In the fiscal second quarter, the company returned $246 million to shareholders through dividend payouts and repurchased stocks worth $7.16 billion. In the first half of fiscal 2025, the company paid out $344 million in dividends and bought back stocks worth $14.9 billion.
At the end of the second quarter, it had a remaining share-repurchase authorization of approximately $7.5 billion. The board of directors recently approved a new $50 billion share repurchase authorization, bringing the total authorization to $57.5 billion, which has no expiration time.
NVDA Third-Quarter Guidance
For the third quarter of fiscal 2025, NVIDIA anticipates revenues of $32.5 billion (+/-2%), higher than the Zacks Consensus Estimate of $30.97 billion.
The non-GAAP gross margin is projected at 75% (+/-50 bps). Non-GAAP operating expenses are estimated at $3 billion.
NVIDIA’s Blackwell Update
During its second-quarter earnings conference call, NVIDIA revealed that it has executed a change to the Blackwell GPU mask to improve production yield and has shipped the same in the second quarter. It is expected to start ramping up the production of Blackwell in the fourth quarter of fiscal 2025 and continue through fiscal 2026.
Earlier, NVIDIA stated that the ramp-up of Blackwell production will begin in 2024. However, the latest update signals that the production ramp-up could now start by the end of January 2025.
Earlier in August 2024, The Information had first reported that NVIDIA could encounter delays in delivering Blackwell chips. According to the report, these delays are due to design flaws and could set back delivery by three months or more, affecting major customers like Microsoft Corporation (MSFT - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Alphabet and Meta Platforms. Such delays could push potential customers toward competitors like Advanced Micro Devices, Inc. (AMD - Free Report) , further denting NVIDIA's near-term outlook.
NVIDIA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.