Nvidia stock dropped Thursday after the AI chipmaker delivered a modest beat-and-raise earnings report. The company said sales of its Blackwell processors exceeded expectations but led to lower profit margins.
Meanwhile, demand for AI processors for data centers appears insatiable for now. On a conference call with analysts late Wednesday, Chief Executive Jensen Huang said the need for more processing power will increase as AI applications become more capable.
Artificial intelligence systems are moving from perception and generative AI to inference and reasoning, Huang said.
"Reasoning models can consume 100 times more compute," he said. "Future reasoning models can consume much more compute."
He added, "The idea that the next generation could have thousands of times and even, hopefully, extremely thoughtful and simulation-based and search-based models that could be hundreds of thousands, millions of times more compute than today is in our future."
Nvidia Stock: AI Momentum
The AI revolution is just getting started as artificial intelligence transitions from generative AI to agentic AI and physical AI, Huang said.
Santa Clara, Calif.-based Nvidia earned an adjusted 89 cents a share, up 71% year over year, on sales of $39.33 billion, up 78%, in the quarter ended Jan. 26. Analysts polled by FactSet had expected fiscal fourth-quarter earnings of 85 cents a share on sales of $38.1 billion.
For the current quarter, Nvidia forecast revenue of $43 billion, up 65% from the same quarter last year. Analysts had been modeling fiscal Q1 sales of $42.07 billion.
On the stock market today, Nvidia stock slid 8.5% to close at 120.15.
Nvidia Stock: Wall Street Upbeat
Nvidia's adjusted gross profit margin declined to 73.5% in fiscal Q4, vs. 75% in Q3 and 76.7% in the year-earlier period. It expects its adjusted gross margin to slip to 71% in the current quarter as it ramps Blackwell production. Nvidia forecast a return to mid-70s gross margins later in the fiscal year.
Wall Street analysts were generally upbeat about Nvidia's Q4 report and guidance. At least five analysts raised their price targets on Nvidia stock after its earnings report.
Truist Securities analyst William Stein reiterated his buy rating on Nvidia stock and increased his price target to 205 from 204.
"Nvidia remains 'the' AI company owing to its culture of innovation, ecosystem of incumbency, and massive investment in software, models, and services," he said in a client note.
Wedbush Securities analyst Daniel Ives said he believes Nvidia will reach a market capitalization of $4 trillion in 2025. Its current market cap is about $3.2 trillion.
On the conference call, Nvidia Chief Financial Officer Colette Kress said customers are scaling their computing infrastructure to "unlock the next level of AI capabilities."
"With Blackwell, it will be common for these clusters to start with 100,000 GPUs (graphics processing units) or more. Shipments have already started for multiple infrastructures of this size," she said.
Margin Worries In Focus
But other analysts cited other worries, led by pressure on Nvidia's gross margins.
Melius Research analyst Ben Reitzes told clients Nvidia's forecast for a 71% gross margin for Q1 "is about a point lower than expected due to an 'expedited ramp' of Blackwell and a higher mix of systems."
DA Davidson analyst Gil Luria also noted gross margin guidance that was "lower than anticipated."
"Despite demand in the near term continuing to be strong, we still believe a decline in demand for Nvidia compute is inevitable as customers begin to scrutinize their ROI on AI compute," he said in a client note.
Nvidia stock is on the IBD Tech Leaders list.
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