Nvidia once again posted a $2 billion beat to revenue estimates, reporting YoY growth of nearly 94% to over $35 billion in revenue. Data center revenue more than doubled in the quarter to over $30 billion, speaking volumes as to the level of demand for its GPUs given that Blackwell had not begun to ship in Q3.

Blackwell matters – a lot. As stated in the webinar, the more the team looked at the details of the release, the clearer it has become that 2025 will be Nvidia’s year – again. Some of this was covered in the pre-earnings write-up published this morning.

On the positive side:

Hopper drove the beat that analysts were expecting, with UBS tagging the beat at $2 billion. This did, indeed, materialize in the earnings report. This beat is clearly not lackluster but given the performance of the stock, up about 850% since two years ago when Hopper began to ship, the product cycle is lackluster and not able to reinvigorate the stock.
My primary message going into tonight’s results was that the I/O Fund is tracking supply chain signals indicating the new generation of GPUs shipping in full volume by mid-2025 (and beginning to ship in the January quarter) will far exceed the GPU sales we saw in 2023 and 2024 combined. This was echoed tonight when Jensen Huang stated: “You see now that at the tail-end of the last generation of foundation models were at about 100,000 Hoppers. The next generation starts at 100,000 Blackwells.”
The importance of big tech capex was also echoed with the CEO stating we will see $1 trillion in data infrastructure rebuild before he expects to see digestion from the hyperscalers. As Damien on the team helped to point out last week, we are at a quarter-trillion right now. Per the CEO: “I believe that there will be no digestion until we modernize a trillion dollars with the data centers.” That would imply another 3X from here for the remaining three-quarter trillion – not in stock price, but in capex. Presumably, it would mean a higher trajectory for the stock price in terms of valuing that revenue.
Management debunked the supply chain rumors (which the inaccuracy is getting to be a tad annoying at this point). When asked about supply chain rumors, the CEO stated “Blackwell production is in full steam. In fact, as Colette mentioned earlier, we will deliver this quarter more Blackwells than we had previously estimated.” As expected, Colette Kress was tight lipped and no official number was provided. I have personally found Nvidia’s management style to be to our benefit as they were a closed book two years ago in the quarters that preceded the historic ramp.

What the Street Asked About:

Despite the rather large top-line beat, margins were relatively in line with guidance, and forecast to contract nearly 2 points sequentially.
Never underestimate Wall Street’s ability to miss the bigger picture. Analysts on the call cross-examined this 200 bps decline despite Nvidia having an operating margin of over 60% compared to most of the Mag 7 having operating margins at half that. The CFO was clear that following Blackwell, the gross margin will eventually return to its current percentage: “As Blackwell ramps, we expect gross margins to moderate to the low-70s. When fully ramped, we expect Blackwell margins to be in the mid-70s. GAAP and non-GAAP operating expenses are expected to be approximately $4.8 billion and $3.4 billion, respectively.”
Supply chain constraints: There has been some FUD published by The Information back in August and again this week. Management provided a strong comment to refute these claims, primarily that: “We completed a successful mask change for Blackwell, our next Data Center architecture, that improved production yields.” Yields is what matters here and this comment along with Q4 seeing more Blackwell revenue than previously estimated helps to eliminate these concerns.
Broadly speaking, there are supply constraints but this is nothing new as it’s been widely understood Blackwell is already sold out for next year.
As we close out the year and move into 2025, investors should be prepared to hear about China and tariffs. Per the pre-earnings report, Nvidia has limited exposure at 12.5% yet it’s quite clear with weak SMH and SOXX ETF price action that the market is pricing in this impact. It’s unclear to me today how TSM will be viewed in terms of tariffs given the Arizona plant is up and running. You can view our webinar clip here regarding SMH.

Fiscal Q3 2025 Results:

As stated, Hopper drove the beat that analysts were expecting, with UBS tagging the beat at $2 billion. However, due to declining from peak revenue growth of 265% earlier this year, Hopper-driven growth of 94% is not what will drive the stock up for the next leg higher. Nvidia investors, such as myself, will need Blackwell’s pricing power and Blackwell’s clear demand signals to re-invigorate the stock.

As stated, the one weak link of the report was Q4’s margin guidance, with management pointing to potential contractions down the line as Blackwell ramps.

Revenue

Nvidia reported 93.6% YoY growth to $35.08 billion in revenue, well ahead of the consensus estimate for $33.13 billion (83% YoY). Nvidia is now lapping its peak growth quarters, Q3 FY24 to Q1 FY25, where revenue more than tripled each quarter as Hopper ramped tremendously fast. Management said in Q3 that the H200 “grew significantly in the quarter.”

Growth technically is decelerating nearly 30 points in Q3 and growth will further decelerate nearly 24 points next quarter, but to be reporting above 93% YoY and almost 70% YoY versus 200-260%+ growth comps is a strong report to say the least.

For Q4, management guided for revenue of $37.5 billion, +/- 2%, just slightly ahead of consensus estimates for $37.02 billion at the midpoint. Management noted that they have “completed a successful mask change for Blackwell…that improved production yields. Blackwell production shipments are scheduled to begin in the fourth quarter of fiscal 2025 and will continue to ramp into fiscal 2026.”

Both Hopper and Blackwell will be shipping in tandem, placing more emphasis on supply constraints moving forward, as management was clear in saying that both products have “certain supply constraints” with Blackwell’s demand “expected to exceed supply for several quarters in fiscal 2026.”

China revenue was 15.4% of revenue compared to 12.7% year-to-date. This is down from the low-20% range last year.

Key Segments

It should be of no surprise that data center revenue beat estimates in the quarter, but what’s interesting is that the segment posted the largest surprise relative to estimates since Hopper’s breakout quarter in FY24.

Data center revenue of $30.77 billion increased 112.0% YoY and 17.1% QoQ, beating estimates by $1.95 billion. Assuming a similar mix as the current quarter, Q4’s data center revenue would be implied to be nearly $32.5 billion.

In the segment, data center compute revenue was $27.64 billion, rising 132% YoY and 22% QoQ. Networking revenue increased 20% YoY but declined (15%) QoQ to $3.13 billion – this slowed sharply from 114 % YoY growth in Q2.

Management said networking growth was driven by Ethernet for AI; “NVIDIA Spectrum-X Ethernet for AI revenue increased over 3 times year-on-year and our pipeline continues to build with multiple CSPs and consumer Internet companies planning large cluster deployments.” It was also indicated that networking would resume sequential growth next quarter: “So this quarter is just a slight dip down and we're going to be right back up in terms of growing. They're getting ready for Blackwell and more and more systems that will be using not only our existing networking but also the networking that is going to be incorporated in a lot of these large systems that we are providing them to.”

Gaming revenue of $3.28 billion increased 15% YoY and 14% QoQ, driven by GeForce RTX series 40 GPUs and game console SoCs.
Pro Viz revenue of $486 million increased 17% YoY and 7% QoQ, driven by the ramp up of RTX GPU workstations.
Automotive revenue of $449 million increased 72% YoY and 30% QoQ, accelerating 35 bp QoQ from 37% YoY growth in Q2, driven by Nvidia’s self-driving platform.
OEM and other revenue of $97 million increased 33% YoY and 10% QoQ.

Margins

Despite the rather large top-line beat, margins were relatively in line with guidance, and forecast to contract nearly 2 points sequentially. This forecasted weakness as Blackwell ramps may be one of the factors behind the initial post-earnings sell-off, with GAAP operating margin seen coming back towards 60%.

GAAP gross margin was 74.6%, just ahead of guidance for 74.4%. Adjusted gross margin was 75%, in line with guidance. This reiterated our view from last quarter that Q1 was the peak for gross margins, as margins have contracted about 380 bp since then.
For Q4, management guided for GAAP gross margin of 73%, +/- 0.5%, and adjusted gross margin of 73.5%, +/- 0.5%, for a sequential contraction of ~150-160 bp.
GAAP operating margin was 62.3% in Q3, increasing slightly from 62.1% in the prior quarter but up from 53.1% in the year ago quarter. Adjusted operating margin of 66.3% dipped slightly from 66.4% in Q2, but increased from 64.8% in the year ago quarter.
For Q4, similar to gross margins, management guided for sequential contraction based on operating expense forecasts. GAAP operating margin is implied to be 60.2%, while adjusted operating margin is implied to be 64.4%, or about a 200 bp sequential contraction.

GAAP net margin was 55.0%, down from 55.3% last quarter but up from 51.0% in the year ago quarter. Adjusted net margin was 57.0%, up from 56.4% last quarter and 55.3% in the year ago quarter.
While it may seem like a small difference, putting it to the scale of revenue growth will show that net income has more than doubled YoY – GAAP net income was $19.31 billion in Q3, up from $9.24 billion last year despite only a 4-point margin expansion.
GAAP EPS of $0.78 beat estimates by $0.08, and represented YoY growth of 111%. Adjusted EPS of $0.81 beat estimates by $0.06 and represented YoY growth of 103%.

Cash and Balance Sheet

Cash flows remained strong in the quarter, with operating and free cash flow margins both expanding sequentially.

Operating cash flow was $17.63 billion, rising 141% YoY and 22% QoQ. OCF margin was 50.3%, expanding from 48.2% last quarter and 40.5% last year; to note, this remains below the 58.9% margin from Q1.
Free cash flow was $16.79 billion, rising 138% YoY and 25% QoQ. FCF margin was 47.9%, up from 44.9% last quarter and 38.9% in the year ago quarter.
Inventories totaled $7.65 billion, increasing nearly 60% YoY and more than 14% QoQ. Purchase commitments and obligations for inventory and capacity also rose 4% QoQ to $28.9 billion. Capacity and supply pre-payments were $5.2 billion, reaffirming that Nvidia is well prepared to launch Blackwell in full-force.
Cash and equivalents totaled $38.49 billion, while debt totaled $8.46 billion.

Earnings Call:

To elaborate on the margin concerns, here was an exchange in the Q&A:

Timothy Arcuri:

“[…] And then Colette, you kind of talked about Blackwell bringing down gross margin to the low-70s as it ramps. So I guess if April is the crossover, is that the worst of the pressure on gross margin? So you're going to be kind of in the low-70s as soon as April. I'm just wondering if you can sort of shape that for us. Thanks.”

Colette Kress

Sure. Let me first start with your question, Tim. Thank you regarding our gross margins, and we discussed our gross margins as we are ramping Blackwell in the very beginning and the many different configurations, the many different chips that we are bringing to market, we are going to focus on making sure we have the best experience for our customers as they stand that up. We will start growing into our gross margins, but we do believe those will be in the low 70s in that first part of the ramp. So you're correct, as you look at the quarters following after that, we will start increasing our gross margins and we hope to get to the mid-70s quite quickly as part of that ramp.”

–End Quote

For More Reading:

Please reference our pre-earnings write-up which summarizes my current thoughts on the stock.

Conclusion:

I said on Fox Business News on Tuesday that I would love to get Nvidia lower, and I truly would. The nitpicking around the margins, the weaker semiconductor peers, the low volume as the stock trades near its all-time highs, the tariff concerns … one or all of these may present us that opportunity.

Nvidia’s fundamentals are a perfect 10. The pre-earnings report had stated: “Make no mistake, Nvidia is the best stock of the decade and we are only four years in. The big picture is that Nvidia's trajectory will continue due to two words: pricing power.”

We are already tracking a 30% minimum difference between GB200NVL72 orders and what Wall Street has estimated for next year. When you add that the DGX B200 systems will be priced 40% higher, and if we assume pricing power affects more SKUs the way it’s going to affect the DGX B200 systems, then we could see about 70% upside next year for Nvidia. Now, the I/O Fund likes to be aggressive, it’s why you’re here. If we can get the stock lower, that potential upside increases.

Wish us luck – and keep an eye on those trade alerts!

Recommended Reading:

Nvidia Q3: Lackluster Quarter until Blackwell Arrives