As a prominent player in the generative artificial intelligence sector, Nvidia is projected to report a significant 82.8% increase in third-quarter sales, reaching $33.13 billion, according to data from LSEG.
This growth rate would represent the slowest in six quarters, following a trend of sales doubling in the previous five periods.
Looking ahead to the fourth quarter ending in January, which will include sales from Nvidia's new Blackwell chips, growth is expected to further decline to 67.6%.
After encountering design flaws that delayed the production ramp-up of this new processor series, investors are eager to see if Nvidia can achieve the projected "several billion dollars in Blackwell revenue" for the January quarter.
"From an investor's viewpoint, the focus is entirely on Blackwell at this moment," stated Hans Mosesmann, an analyst at Rosenblatt.
Morgan Stanley analysts project Blackwell revenue to fall between $5 billion and $6 billion in the fourth quarter, while Piper Sandler analysts estimate a range of $5 billion to $8 billion for these chips, which offer 30 times the speed of their predecessors.
Ivana Delevska, founder and chief investment officer of Spear Invest, which holds Nvidia shares in an actively managed ETF, is even more optimistic, forecasting that these chips could generate approximately $12 billion to $13 billion during the same timeframe.
Nonetheless, Nvidia's capacity to deliver these chips may be constrained by supply chain limitations. TSMC, Nvidia's contract chip manufacturer, indicated in July that production capacity for AI chips will remain extremely tight as we approach 2025.
Morgan Stanley analysts noted the difficulty in accurately interpreting the data, emphasizing that even a one-week shift in the timeline for the delivery of Blackwell chips could significantly influence revenue.
Nvidia's quarterly performance will face challenging year-over-year comparisons due to a spike in investments in AI infrastructure following the late 2022 launch of OpenAI's ChatGPT, which relies on thousands of Nvidia graphics processors for its training and operation.
The company has surpassed Wall Street's revenue forecasts by tightening margins over the last four quarters.
Nvidia, which has recently surpassed Apple to become the world's most valuable company, will play a crucial role in either propelling or dampening the ongoing rally in AI-related stocks. Its shares have nearly tripled in value this year.
In the fourth quarter, Nvidia's adjusted gross margin is projected to decline by more than three percentage points to 73.6%, primarily due to the substantial costs associated with developing and scaling up production of new AI chips.
Research and development expenses, along with adjusted operating costs, are anticipated to reach record levels during this period.
However, analysts and investors concur that the demand for Nvidia's leading GPUs will remain strong in the near future.
Major cloud service providers, such as Microsoft and Amazon, are expected to continue investing billions to expand AI data centers that utilize Nvidia's chips, as they compete to create the fastest and most advanced generative AI applications.
Nvidia's proprietary CUDA software framework, which developers use to program its processors, is also a key factor in its dominance of the AI chip market, where it holds approximately 80% market share.
According to John Belton, a portfolio manager at Gabelli Funds, which owns Nvidia shares, the software has evolved into "a really nice multi-billion-dollar annual recurring revenue business, operating at scale, still growing north of 100%."