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Nvidia (NVDA) has been one of the hottest large-cap stocks of the year, thanks to its incredible run. The stock has surged about 135% year-to-date and a solid 179% over the past 12 months. This impressive rally in NVDA stock reflects massive demand for its graphics processing units (GPUs), which are considered the backbone of the booming artificial intelligence (AI) industry.
Thanks to the stellar demand for its products, Nvidia continues to deliver solid financials. In fact, its Q2 earnings once again blew past analysts' forecasts. Despite its strong financials, the rally in Nvidia stock has recently hit a pause. The stock is down about 17.4% from its 52-week high of $140.76, set in June, and it has corrected by over 10% in the past month.
The higher mix of new products within the data center segment and inventory provisions for low-yielding Blackwell material is impacting Nvidia’s gross profit margins. Further, the Blackwell delay is possibly limiting revenue growth, even as demand remains strong. These factors have affected investors’ sentiment and restricted the upward trajectory of Nvidia stock.
But does this mean Nvidia’s golden run is over, or is this just a temporary slowdown before it takes off again? Let’s dive deeper.
Short-Term Margin Pressures: A Temporary Setback for NVDA
In Q2, Nvidia’s adjusted gross margins came in at 75.7%, slightly lower than previous quarters. NVDA's margins declined due to a higher mix of new products, particularly in the data center segment, and inventory provisions related to low-yield Blackwell materials.
Nvidia expects these trends to persist through Q3 and Q4 as the data center revenue mix continues to shift to new products. It projects margins to hover around 74.4% and 75% in Q3.
However, this margin pressure is likely to be temporary. As Nvidia ramps up production of its newer products, the costs should stabilize, leading to more consistent profit margins in the future.
Blackwell Delays: Mostly Behind Us
While the Blackwell delay has possibly limited some of its revenue growth opportunities, the worst is over. Notably, Nvidia is ramping up Blackwell production. Further, the company will start shipping the new offering in Q4, with plans to scale into Q4 and 2025.
Nvidia’s leadership has said that the Blackwell chip is witnessing stellar demand. Higher production, solid demand, and operating efficiencies will significantly boost revenues and support margins.
Beyond Blackwell, Nvidia’s Hopper platform continues to thrive, showing strong demand that will likely boost revenue in the second half of 2024 and into next year.
Nvidia Sees High Demand for Key Products
Nvidia’s growth story is far from over. The momentum in Nvidia’s financials should continue into fiscal 2025 and beyond, driven by strong demand for its key products, including Hopper, Blackwell, GPU computing, and networking platforms.
Nvidia's customers are increasingly purchasing its Hopper architecture, and the company is ramping up its new H200 platform. Shipments began in the second quarter, targeting large cloud service providers (CSPs), consumer internet companies, and enterprises. Nvidia expects demand for Hopper to rise in the second half of fiscal 2025 as supply and availability have improved.
Moreover, Nvidia is preparing to generate billions of dollars in revenue from its upcoming Blackwell platform in Q4 alone. With demand already outpacing supply, Blackwell is expected to generate significant revenues for the company in the coming quarters.
Nvidia's networking business is also growing rapidly. The company's AI-focused Ethernet platform, Spectrum-X, saw its revenue double in Q2, with hundreds of customers adopting it. Nvidia plans to launch new Spectrum-X products each year to meet the growing demand, potentially making it a multi-billion-dollar product line within a year.
Beyond its data center business, Nvidia’s gaming segment remains strong. Healthy demand for gaming products and solid channel inventory will likely keep this division a reliable contributor to Nvidia’s overall revenue growth.
Analysts Are Bullish on Nvidia’s Future
Despite the recent pullback in its stock price, analysts remain confident in Nvidia’s long-term prospects. The 40 analysts in coverage overwhelmingly maintain a “Strong Buy” rating on the stock, with an average price target of $149.46 — representing a potential 28.6% upside from current levels.
Conclusion: Nvidia’s Future Looks Bright
While the rally in Nvidia stock may have slowed, the company’s underlying fundamentals remain strong. With growing demand for its AI platforms, new product launches, and expanding market opportunities, Nvidia is well-positioned for continued growth. The recent dip in its stock may simply be a pause before the next leg of its growth story takes off.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
