Technology Update: ‘Did Nvidia Hit Another Home Run?’

By Daniel Morgan, Synovus Trust Senior Portfolio Manager

Shares of artificial intelligence (AI) juggernaut Nvidia (NVDA) sank on early trading after the company released second quarter results that beat analyst expectations. The company also said it expects Q3 revenue ahead of guidance, but slightly below the “whisper number.”

During the 2Q25, Nvidia reported adjusted earnings per share of $0.68 on revenue of $30 billion. Analysts were expecting EPS of $0.64 and revenue of $28.8 billion. That marks a 122% increase on the top line from a year ago; earnings rose 168% from the same quarter last year. The bulk of that revenue came from Nvidia’s all-important Data Center business, which brought in $26.3 billion in the quarter versus Wall Street's $25 billion in revenue expectations. That's a 154% increase from the same period last year when the segment brought in $10.3 billion.

During the release, NVDA commented that, “Hopper demand remains strong, and the anticipation for Blackwell is incredible. Blackwell samples are shipping to partners and customers. Spectrum-X Ethernet for AI and NVIDIA AI Enterprise software are two new product categories achieving significant scale, demonstrating that NVIDIA is a full-stack and data center-scale platform. Across the entire stack and ecosystem, we are helping frontier model makers to consumer internet services, and now enterprises. Generative AI will revolutionize every industry.”

Cloud customers continue to be approximately 45%-50% of Data Center segment sales versus more than 50% in the last few quarters, as usage is broadening out, including large purchases by Tesla (TSLA) and Meta Platforms (META) in the quarter. The Hopper 200 (H200) chips and H20 chips ramped for shipment in this quarter, and the next generation Blackwell GPU family is sampling and expected to ship in 3Q25, with the support of more than 100 system OEMs at launch.

What drove the volatility in NVDA shares after the release was the guidance management gave for the upcoming 3Q25, stating that revenue is expected to be $32.5 billion, plus or minus 2%. That equates to a revenue range of $ 33.15 billion – $31.85 billion that compared a “whisper number” before the release of $33-$34 billion. This disparity led to the initial sell-off.

Heading into the report, NVDA shares had been volatile due to a large list of concerns, including:

1. Customer capital spending budgets and customer ROIs;
2. Competitive dynamics;
3. Export controls;
4. Supply chain concerns;
5. Macro concerns, and market valuation compression. 

The recent correction in NVDA stock has been perplexing, but there are plenty of catalysts ahead – the prospect for multiple upward revisions, an increase to lead times and visibility as demand transitions to Blackwell from Hopper family of AI chips, a strong answer to any competitive concerns and the lack of other exciting stories in semis away from the AI theme. All at a valuation that is suddenly much more reasonable than a few weeks ago. Perception is that the market is taking an extremely glass half-empty view of some of the hyperscale comments, where there is a clear desire on the part of customers to continue to commit resources to developing multi modal generative AI.

The top-tech players (Amazon, Google, Microsoft and Meta) are projected to spend collectively up to  $185 billion in AI CapEx in 2024. A large portion of that spending will be on AI in the data center. CapEx from hyperscale is set with a large percentage being dedicated toward compute, further rising in 2024 and 2025. As more applications for generative AI are rolled out and the need for accelerated compute expands, hyperscalers will be forced to continuously deploy new compute stacks and expand their data centers. CapEx spend rates in the data center space lead to all the top IaaS cloud units to post an acceleration in revenue growth rates  in the 2Q2024: AWS (19%), Azure (29%) and GPC (28%).  Enterprise and Consumer Internet companies are also driving demand. The data center supply chain continues to ramp extremely rapidly. NVIDIA continues to be extremely responsive to the surging demand, having grown the data center business nearly four times over the course of the past four quarters.

NVDA’s Data Center segment now generates more revenues than both Intel Corp (INTL) and Advanced Micro Devices (AMD) combined data center units! NVDA’s Data Center business is expected to more than double (up 122% Year-over-Year) its revenues in FY2025 to $105.4 billion from $47.5 billion in FY2024 with AI being the major catalyst!

Improving availability and continued strong demand for the Hopper (H100) GPU benefited the recent quarter, but the flow of new products is expected to continue to drive growth in 3Q25. NVDA Hopper 200 (H200) chips are ramping in production and are shipping to customers this upcoming quarter, with the first delivered to OpenAI to train its latest Chat GPT 4O LLM. The H200 has twice the performance of the H100 for inferencing workloads. NVDA recently announced a new family of AI GPUs called Blackwell; this  Blackwell series will include the B100, B200 and GB200 that will be a substantial upgrade from H100. The next gen Blackwell GPU family is sampling and expected to ship in Q3 (October 24 as a target date) with the support of more than 100 system OEMs at launch, twice as many as the Hopper launch. Blackwell is four times faster at training, 30 times faster at inferencing and 25% more energy efficient versus the H100. Analysts have been concerned about product transitions, but Hopper and Blackwell chips are software and backward compatible, making upgrades less disruptive. In addition, with each new generation comes both higher performance and more power efficiency, making it more economically attractive to continue to migrate to the latest technology.

Indications are that initial quantities of B100 and B200 will start shipping late in Q3 (October 24) with small revenue contributions in the quarter. Expectations are for these GPUs to be globally available in material quantities in the fourth fiscal quarter. The Grace Blackwell (GB200 superchip) is expected to be become available in the fourth quarter. The GB200 is likely to be up significantly through CY2025, even more so than the B100 & B200 chips. On its initial hurdles, the company has been working with customers and its support infrastructure for some time to abate deployment issues upon the launch. The Blackwell 100 (B100) is system-compatible and will be priced more aggressively than initial expectations. With NVDA noting B100 pricing at $30,000-40,000, it represents an estimated 25-30% premium above the current H100 priced at 25K. Once NVDA begins shipping the Blackwell chips, the Grace Blackwell (GB100) overall demand is expected to be strong. NVDA has spent more than a year developing the supply chain for the Blackwell architecture in anticipation of significant demand across its customer base. NVDA is quite motivated to use B100 to blunt the momentum of competition from Advanced Micro Devices, Intel and Marvell Technology (MRVL).

The biggest doubt hanging over NVDA stock is whether sales growth will slow later this year as customers transition from the Hopper series to the shipment of the new Blackwell chips, which are scheduled to ship in mid-October. This lag and difficult comparisons cast some shadows over the current lofty valuation. NVDA’s valuation is not for the faint of heart as the stock is trading at 74 times trailing earnings. The price-to-book (P/B) ratio stands at 64 times, compared to a five-year average P/B of 26.5 times. To grasp the enormity of NVDA’s P/B multiple, the Philadelphia Semiconductor Index (SOX) trades at just 6 times P/B! However, due to NVDA’s hyper projected profit growth, the stock trades at just 46 times FY2025 EPS adjusted estimate of $2.71.  NVDA shares have traded at a five-year historical average P/E of 71 times earnings. So based on these forward EPS projections, the stock does not seem as overvalued!

So, I expect during the 2Q25 earnings release we can safely say that “Nvidia did hit another home run.”  However, the “Street” was looking for Nvidia to hit a “Grand Slam!” The disparity in the $33-34 billion “whisper number” and 3Q25 revenue guidance of $32.5 billion, plus or minus 2%, created enough doubt to lead to the share volatility. I guess we will need to wait for the next “at bat.”