Nvidia released earnings and with every reason for it to selloff, it didn't.

B-school peers who know me well will tell you, “Chris has been talking about Nvidia for almost a decade”! Since 2016 to be exact. Back in the mid-2010’s, I saw Nvidia as an under the radar stock with big potential. With that said, as much as I want to take all the credit for being early, there is no way I saw Nvidia becoming the A.I./chip behemoth it has become today. So what caught my attention? The CEO. I found Jensen Huang to be passionate, persuasive and outright cool during interviews about what the company could become and the path it would take to get there. At that particular time, Nvidia was the premier leader in video game graphics with Artificial Intelligence being a modest mix in its business portfolio. That modest A.I. mix has turned Nvidia from a $60 billion dollar company focused on gaming in 2016 to an unstoppable $4 Trillion dollar A.I. chip company with no real competition. Incredible!

Nvidia reported earnings yesterday. Since 2021, Nvidia has been on a championship run with consecutive record revenue/earnings, stock buybacks and multiple stock splits. There was an insurmountable amount of pressure for Nvidia to do well with this report. Why? Because Nvidia has been the name keeping the markets afloat. Did Jensen Huang’s company get the job done? Let’s take a look at the numbers!

Results:

• Q2 Earnings per share (EPS): $1.05 vs. $1.01 Exp. (Beat)

• Q2 Revenue: $46.74 Billlion vs. $46.06 Billion Exp. (Beat)

• Q2 Data Center Revenue: $41.1 Billion vs. $41.3 Billion Exp. (Miss)

• Q2 Gaming Revenue: $4.3 Billion vs. $3.8 Billion (Beat)

• 9th consecutive Qtr. of 50%+ Growth

• Net Income rose 59%

• $60 Billion share repurchase

Although Nvidia missed slightly on Data Center revenue, NVDA was only down around 3% after-market. I follow stock earnings religiously. Every Quarter. When a stock like Nvidia comes into earnings with such high expectations, any miss no matter how slight will trigger a major pullback in the stock. That is not what happened yesterday afternoon. For a stock that has been up approximately 40% YTD and to be down only 3% after missing projections for its most important business metric, tells you the strength of the company and the quality of the report even with the Data Center miss. If the PCE (Personal Consumption Expenditure) number comes in cooler than expected, I would expect Nvidia to turn green on Thursday.

A couple reasons why the Data Center revenue miss is not a big deal:

China

This quote is from yesterday’s earnings conference call where Jensen Huang referenced to the earnings potential now that the China restrictions are expected to be lifted. Nvidia made zero sales of its H20 chip to China. This will change in the coming quarters. Nvidia made a deal with the U.S. Gov’t to gain access to the Chinese market to sell its H20 chips while kicking back 15% of its China revenue to the U.S. Gov’t. A pay for play. It is key for this to get done because the last thing the U.S. wants is for China to build their own A.I. chips and become independent of U.S. chipmakers. Think Deepseek in January of this year where China produced its own LLM to compete with ChatGPT. The market went into a frenzy when DeepSeek was announced despite being an inferior product to ChatGPT. A self-sufficient China that designs its own chips is a national security concern for the U.S. Re-establishing a relationship with China will be another revenue driver for Nvidia.

Hyper-scaler spending projected to increase, for now.

Hyper-scaler spending is being raised long-term. On the earnings call, Nvidia stated they anticipate $600B in datacenter Capex by 2025, nearly doubling over 2 years. This surge will be fueled by cloud investments. Now things can surely change if the economy deteriorates. Nothing is impossible. If we run into an economic slowdown, and hyper-scalers need to cut costs, the AI CapEx spend budget will be altered. However, long-term, those numbers will see a substantial increase.

I will admit, one cause for concern for Nvidia is that 44% of its Data Center revenue comes from four hyper-scalers, Microsoft, Meta, Amazon & Google. Now this could be a cause for concern for Nvidia if these hyper-scalers start producing their own chips. That’s not a here right now problem. However it is no secret that if Nvidia can’t make these GPU chips fast enough to satisfy demand, then there will be a hyper-scaler(s) to invest in trying to do it themselves. Something to look out for.

No Competition

Nvidia vs. AMD

Let’s face it. AMD is not there yet to compete with NVDA. Nvidia’s Data Center business is now 10x larger than AMD’s. In a Gore Report article dated August 8th titled “AMD: The Forever #2 and that is okay”, I stated that AMD looks like it will just be the number 2 player forever and that’s okay. This chart shows how dominant NVDA’s Data Center business has become relative to AMD. AMD has its MI300 chip set to be released next quarter to compete with NVDA’s H20. It’s a steep hill for AMD to climb and margins will matter. The fact is the demand for NVDA’s high performance chips are so massive, hyper-scalers would rather sit and wait for NVDA to replenish their inventory rather than take a chance on AMD chips.

My Thoughts

Jensen Huang has NVDA on a generational run. Although Nvidia missed slightly on the Data Center revenue, Nvidia will be more than fine. The momentum is unstoppable. AI CapEx is spending is booming and the fundamentals are beyond solid. What shareholders will be really excited about is when Q3 includes China sales. We established Nvidia has no real competition right now. The biggest threat as we stated would be its customers developing chips for themselves. So how long will Nvidia’s run last? For as long as Jensen Huang says so.