Expectations were high Nvidia‘S (NASDAQ: NVDA) financial report second quarter fiscal 2025. The company has become the de facto standard bearer for the artificial intelligence (AI) revolution. Its graphical processing units (GPUS) provide the computing power needed to create the large language models (LLMs) that enable generative AI.
The rising demand for AI has catapulted Nvidia’s stock into the stratosphere, with shares up more than 150% year to date and more than 750% since the accelerated adoption of AI began early last year (at the time of writing).
In recent weeks, however, investors have grown concerned that Nvidia has simply gone too far, too fast, and are wondering whether the frenetic pace of AI adoption can be sustained. Nvidia answered that question with a resounding yes — but given the stock’s parabolic gains, blockbuster results simply weren’t enough.
In figures
In the second quarter, Nvidia generated a record $30 billion in revenue, which was up 122% year over year and 15% quarter over quarter. This resulted in adjusted earnings per share (EPS) of $0.68. The results beat analysts’ consensus estimates for revenue of $28.6 billion and EPS of $0.64. Revenue also beat management’s forecast of $28 billion.
The headliner was Nvidia’s data center segment, which includes chips used for AI. Revenue of $26.3 billion rose 154% year-over-year and 16% quarter-over-quarter, driven by strong AI adoption among cloud computing and hyperscale data center operators.
It wasn’t just AI that fueled Nvidia’s growth, though, as the data center segment outpaced the results of the company’s other segments (all segments posted gains year over year):
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The gaming segment grew 16% to $2.9 billion.
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The professional visualization segment increased 20% to $454 million.
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The automotive segment rose 37% to $346 million.
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Original equipment manufacturer revenue rose 33% to $88 million
Nvidia’s gross margin of 75.1% was higher than the 70.1% in the year-ago quarter, largely due to the company’s massive pricing power. That said, the metric declined sequentially from 78.4% in Q1. The company had previously indicated that margins would moderate through the remainder of the year. CFO Colette Kress cited inventory provisions for its Blackwell chips and product mix as reasons for the decline.
What the future holds
CEO Jensen Huang noted that demand for its current Hopper chip “remains strong” and called anticipation for its next-generation Blackwell architecture “incredible.” He further noted that in recent industry tests, Nvidia’s Hopper H200 and Blackwell B200 chips “swamped” MLPerf benchmark results for AI inference. Despite the best efforts of its rivals, Nvidia chips remain the gold standard for AI processing.
According to media reports, the new Blackwell chips could be delayed by up to three months due to design flaws, but Nvidia has allayed those concerns. “We shipped samples of our Blackwell architecture to customers in the second quarter. We have implemented a change to the Blackwell GPU mask to improve production yield. Blackwell production is scheduled to begin in the fourth quarter and run into fiscal 2026.”
Another byproduct of Nvidia’s growth trajectory is the massive amount of cash the company is generating, as free cash flow more than doubled to $13.5 billion. As a result, Nvidia is increasing its returns to shareholders. The board of directors approved an additional $50 billion in share repurchases, on top of the $7.5 billion left on its existing authorization.
These factors have combined to create a robust outlook for the third quarter. Management is targeting $32.5 billion in revenue, which would represent 80% year-over-year growth. That’s a slowdown from the triple-digit growth Nvidia has delivered in each of the past five quarters, but investors have long known that growth of that magnitude couldn’t continue indefinitely. Still, the numbers show investors were apparently disappointed.
Nvidia shares were down about 7% in after-hours trading (at the time of writing), but it’s too early to tell what tomorrow will bring. Taking a step back, the company’s results continue to defy expectations, but a slowdown in parabolic growth was inevitable. Nvidia’s star still burns brightly, and its long-term investment thesis is intact.
When we combine Nvidia’s sustainable competitive advantage, strong results, and robust outlook, we see the company has long-term growth potential.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Why Is Nvidia Stock Dropping After Reporting Parabolic Growth? was originally published by The Motley Fool
