Compared to any other stock on Wall Street, Nvidia reported an exceptional quarter. Yet, Nvidia’s stock is competing with itself at this point, and when compared to previous Nvidia earnings reports, Q4 and Q1 represent a pause in the fireworks.
Nvidia reported $11 billion in Blackwell revenue, however, Huang finally admitted the NVL systems are in production (i.e., not shipping in volume). Rather, other SKUs are making up Blackwell revenue for now. According to a discussion with an analyst, Nvidia foresees NVL systems and the next generation Blackwell Ultra ramping “simultaneously” — which increases the pressure to deliver this fiscal year given there was a “couple months” delay with the NVL systems.
Fortunately, for the I/O Fund, we use technicals to reduce risk. When there is a change in story, even if it’s transitory by a quarter or two, we rely on technicals to protect our position while maximizing the upside. As you know, we are exposed to Nvidia — yet heavily exposed when you consider its ecosystem.
We also hold our management teams accountable, and not even Jensen Huang should get a free pass. Investors should have been provided more transparency on when the premier SKU will be shipping in volume, since it was originally slated for Q1. Below, I outline the reasons that H2 is likely to be the catalyst for the next leg higher, whereas Q1 may not have been enough to cause the stock to break out. With that said, semiconductors see intra-quarter news more frequently than software peers, and thus, this could change anytime.
Nvidia’s valuation remains very attractive. I stated on Fox yesterday that Nvidia and its suppliers are the best trade of the year – the question that remains is timing. If the NVL systems were shipping in volume, the supply chain would be on fire right now – is what I mean by timing. I also pointed out that investors do better when proxies participate – whether that’s suppliers providing a clear, green light or an ETF like SMH, which is 14% off ATHs.
I look at this and more below!
Revenue Beat/Raise (Again)
Nvidia beat consensus estimates by just $1.15 billion this quarter, its smallest beat of the last seven quarters, as it reported revenue of $39.33 billion, up 77.9% YoY and 12.1% QoQ. Management reported that Blackwell was witnessing the fastest product ramp in company history, delivering $11 billion in Blackwell revenue in Q4.
For FY25, Nvidia reported revenue growth of 114% YoY to $130.5 billion, marking a consecutive year of triple digit growth after revenue rose 126% YoY in FY24.
For Q1, Nvidia guided for revenue of $43 billion, +/- 2%, representing growth of 65.1% YoY and 9.3% QoQ at midpoint, slightly ahead of estimates for 61.2% YoY growth to $42 billion. As we had noted in our pre-earnings analysis, some analysts were looking for as much as $47 billion in revenue in Q1. On a sequential basis, Q1 is also estimated to see QoQ growth dip to the single-digit range at the midpoint of guidance, slowing nearly 3 points from Q4.
Margins to Improve H2
Margins are expected to contract sequentially in Q1 as Blackwell ramps, with management having stated in Q3 that gross margins were expected to dip to the low-70% level as Blackwell begins to ramp before returning to the mid-70% range.
Gross margins in Q4 were in-line with prior guidance, though operating margins came in ahead of guidance as Nvidia continued to benefit from strong operating leverage.
- Q4 GAAP gross margin was 73%, contracting from 74.6% in Q3. For Q1, GAAP gross margin is expected to contract further to 70.6%.
- Adjusted gross margin was 73.5% in Q4, down from 75% in Q3, with management guiding for another contraction to 71% in Q1.
- Q4 GAAP operating margin was 61.1%, contracting from 62.3% in Q3. For Q1, GAAP operating margin is expected to drop below 60%, with management’s expense guidance implying a 58.5% margin.
- Adjusted operating margin was 64.9% in Q4, down from 66.3% in Q3, with Q1 forecast to contract further to 62.6%.
- Q4 GAAP net margin expanded slightly sequentially to 56.2%, though Q1’s net margin is implied to be 50.1% due to the QoQ gross and operating margin contractions.
For FY25, margins expanded on a YoY basis despite contracting in the back half of the year. FY25’s GAAP gross margin was 75%, up from 72.7% in FY24. GAAP operating margin expanded 8.3 points YoY to 62.4%, as GAAP operating income increased 147% YoY to $81.5 billion. GAAP net margin increased 7 points YoY to 55.9% with a similar 134% YoY rise in net income to $86.8 billion.
EPS
Q4 GAAP EPS increased 82% YoY to $0.89, beating estimates for $0.80. Adjusted EPS of $0.89 beat estimates for $0.85. Growth is expected to moderate to the ~50% range in the coming quarters, likely pressured by falling margins due to Blackwell’s ramp.
- Q1 adjusted EPS is expected to rise 49.4% YoY to $0.91.
- Q2 adjusted EPS is expected to rise 50.2% YoY to $1.02.
Cash Flows and Balance Sheet
Operating and free cash flows both decreased slightly sequentially, with management explaining that this was due to a “a higher accounts receivable balance due to shipment linearity and increased inventory to support our Blackwell product ramp.” Both inventories and accounts receivables showed strong QoQ growth.
- Operating cash flow in Q4 was $16.63 billion, down from $17.63 billion in Q3. OCF margin was 42.2%, more than 8 points lower than Q3’s 50.3% margin. FY25’s operating cash flow was $64.09 billion, rising 128% YoY and representing a margin of 49.1%, up 3 points YoY.
- Free cash flow was $15.52 billion in Q4, down from $16.79 billion in Q3. FCF margin was 39.5% in Q4, down from 47.9% in Q3. For FY25, free cash flow rose 125% YoY to $60.72 billion, for a margin of 46.5%, up 2.3 points YoY.
- Cash and marketable securities totaled $43.21 billion, while debt totaled $8.46 billion.
Inventories, accounts receivable and purchase commitments all rose quite substantially on a sequential basis as Nvidia prepares to ramp Blackwell throughout the year.
- Inventories rose nearly 32% QoQ to $10.08 billion, representing a sequential rise of $2.43 billion.
- Accounts receivable rose $5.4 billion QoQ to $23.1 billion.
- Purchase commitments and obligations for inventory and manufacturing capacity rose $1.9 billion QoQ to $30.8 billion.
Key Segments
Data Center
Data center revenue rose 93% YoY and 16% QoQ to $35.58 billion in Q4, driven primarily by GPUs as networking revenue was soft. Compute revenue rose 116% YoY and 18% QoQ to $32.56 billion in Q4, though Networking revenue declined (9%) YoY and (3%) QoQ to $3.02 billion.
Management noted that they “delivered $11.0 billion of Blackwell architecture revenue in the fourth quarter of fiscal 2025, the fastest product ramp in our company’s history,” driven by major CSPs which accounted for 50% of data center revenue. Q4 growth was also aided by sequential growth for the H200.
For Networking, Nvidia said that it is “transitioning from small NVLink 8 with Infiniband to large NVLink 72 with Spectrum X,” with growth in Ethernet and NVLink products related to the Grace Blackwell ramp.
For FY25, data center revenue rose 142% YoY to $115.2 billion, driven by a 162% YoY increase in Compute revenue to $102.2 billion, with Networking revenue rose just 51% YoY to $12.99 billion.
Other Segments
- Gaming revenue declined (11%) YoY and (22%) QoQ to $2.54 billion, due to “limited supply for both Blackwell and Ada GPUs.” For FY25, gaming revenue rose 9% YoY to $11.35 billion.
- Automotive revenue rose 103% YoY and 27% QoQ to $570 million, driven by self-driving platform sales. For FY25, automotive revenue rose 55% YoY to $1.69 billion.
- Pro Viz revenue rose 10% YoY and 5% QoQ to $511 million, driven by a “continued ramp of Ada RTX GPU workstations for use cases such as generative AI-powered design, simulation, and engineering.” For FY25, Pro Viz revenue rose 21% YoY to $1.88 billion.
- OEM and other revenue rose 40% YoY and 30% QoQ to $126 million. For FY25, OEM and other revenue rose 27% to $389 million.
Earnings Call:
NVL 72 Systems and Blackwell Ultra
Of the $200 billion in revenue expected this year, roughly $100 billion is expected to come from NVL systems which comes out to 30,000 to 35,000 racks at $3 million per rack. Given there is evidence of a delay, there was bound to be a question about this on the call. Overall, the answer helps to alleviate if the systems are ready yet (they have “ramped production” but not stated they were shipping in volume).
The remaining issue is if both Blackwell’s NVL systems and Blackwell Ultra (the next generation of GPUs) can ramp "simultaneously” (which was not the original road map). Perhaps these two can successfully ramp simultaneously, but it’s also important to acknowledge this was not the original plan. Personally, I think the hiccup discussed below should be explained more as to when the systems will ship in volume, since it was originally expected to be Q1. Judging by analyst estimates, the October quarter will see higher QoQ growth in terms of revenue at $5 billion compared to analyst estimates of $4 billion for the previous quarter.
Harlan Sur
Good afternoon. Thanks for taking my question. Your next-generation Blackwell Ultra is set to launch in the second half of this year, in line with the team's annual product cadence. Jensen, can you help us understand the demand dynamics for Ultra given that you'll still be ramping the current generation Blackwell solutions? How do your customers and the supply chain also manage the simultaneous ramps of these two products? And — is the team still on track to execute Blackwell Ultra in the second half of this year?
Jensen Huang
Yes. Blackwell Ultra is second half. As you know, the first Blackwell was we had a hiccup that probably cost us a couple of months. We're fully recovered, of course. The team did an amazing job recovering and all of our supply chain partners and just so many people helped us recover at the speed of light. And so now we've successfully ramped production of Blackwell.
But that doesn't stop the next train. The next train is on an annual rhythm and Blackwell Ultra with new networking, new memories and of course, new processors, and all of that is coming online. We've have been working with all of our partners and customers, laying this out. They have all of the necessary information, and we'll work with everybody to do the proper transition. This time between Blackwell and Blackwell Ultra, the system architecture is exactly the same. It's a lot harder going from Hopper to Blackwell because we went from an NVLink 8 system to a NVLink 72-based system. So the chassis, the architecture of the system, the hardware, the power delivery, all of that had to change. This was quite a challenging transition.
But the next transition will slot right in Blackwell Ultra will slot right in. We've also already revealed and been working very closely with all of our partners on the click after that. And the click after that is called Vera Rubin and all of our partners are getting up to speed on the transition of that and so preparing for that transition. And again, we're going to provide a big, huge step-up. And so come to GTC, and I'll talk to you about Blackwell Ultra, Vera Rubin and then show you what we place after that. Really exciting new products, so to come to GTC piece.
–End Quote
The $11 billion is likely coming from other SKUs as we pointed out in our pre-earnings analysis “There is certainly a scenario where Nvidia’s GPUs are in such high demand that other SKUs can help make up for a delay on the much-larger GB200 NVL systems.” The additional evidence of this is the QoQ decline in networking as these systems would certainly drive QoQ growth in networking, making the clear readthrough that other SKUs are driving the $11 billion.
When asked if there were bottle necks to consider with NVL 72 systems specifically, the CEO avoided discussing NVL72 systems and redirected to a more general discussion on the Grace Blackwell architecture. He also pointed toward single use cases that have “come online” rather than a “shipping in volume” discussion: “You've probably seen on the web, a fair number of celebrations about Grace Blackwell systems coming online and we have them, of course. We have a fairly large installation of Grace Blackwell goes for our own engineering and our own design teams and software teams. CoreWeave has now been quite public about the successful bring up of theirs. Microsoft has, of course, OpenAI has, and you're starting to see many come online. And so I think the answer to your question is nothing is easy about what we're doing, but we're doing great, and all of our partners are doing great.”
TAKEAWAY: The NVL 72 systems are probably not shipping in volume right now, but should be soon (if they’re in production). This will run close to Blackwell Ultra’s launch. Demand will not be an issue rather it’s unusual to see two generations ship this close to one another, and it will require a smooth supply chain
Custom Silicon Not a Threat for 4 Reasons
Concerns around timing of shipping for Blackwell SKUs will be transitory yet concerns with custom silicon are here to stay. Since the very first day of covering the AI story in 2018, I have been fielding concerns around custom silicon as Google’s TPUs were all the rage in 2018. It was actually expected at the time that Google’s TPUs would transition to merchant sales and directly compete with Nvidia. Nearly seven years later, that has not materialized.
Below, is how Jensen Huang describes the challenges around custom silicon. He points toward custom silicon being application specific whereas GPUs are more flexible (this part is key), the software layer, as well as the fact that a lot of custom silicon does not make it to full production. Because investors will be fielding this concern into the foreseeable future, I’ve noted the response and four reasons below:
- General versus application specific: “NVIDIA's architecture is general whether you're — you've optimized for unaggressive models or diffusion-based models or vision-based models or multimodal models or text models. We're great in all of it […] And so by definition, we're much, much more general than narrow”
- Nvidia is Everywhere: “So we're general, we're end-to-end, and we're everywhere. And because we're not in just one cloud, we're in every cloud, we could be on-prem. We could be in a robot. Our architecture is much more accessible and a great target initial target for anybody who's starting up a new company. And so we're everywhere.”
- Performance: “And if our performance per watt is anywhere from 2x to 4x to 8x, which is not unusual, it translates directly to revenues. And so if you have a 100-megawatt data center, if the performance or the throughput in that 100-megawatt or the gigawatt data center is 4 times or 8 times higher, your revenues for that gigawatt data center is 8 times higher.”
- What Nvidia Does is Hard – the Hardware and the Software is hard to replicate: “And the ecosystem that sits on top of our architecture is 10x more complex today than it was 2 years ago. And that's fairly obvious because the amount of software that the world is building on top of architecture is growing exponentially and AI is advancing very quickly. So bringing that whole ecosystem on top of multiple chips is hard.”
China Increases in Geo Mix for Q1
An analyst pointed out that China will be increasing in geographic mix for Q1.
Here is the concern from the analyst: “And I think there is a concern about whether U.S. can pick up the slack if there's regulations towards other geographies. And I was just wondering, as we go throughout the year, if this kind of surge in the U.S. continues and it's going to be — whether that's okay. And if that underlies your growth rate, how can you keep growing so fast with this mix shift towards the U.S.? Your guidance looks like China is probably up sequentially. So just wondering if you could go through that dynamic and maybe collect can weigh in.”
This may be a moot issue, as management stated: “China is approximately the same percentage as Q4 and as previous quarters. It's about half of what it was before the export control. But it's approximately the same in percentage” but noting the concern here that this analyst thinks USA may not be able to fully make up for a China loss if the trade war heats up. I think if the NVL systems are shipping in volume, it will not matter as China is primarily helping to make up for the lag in these systems right now for the next 1-2 quarters.
Conclusion:
You might be asking yourself — why is the I/O Fund so focused on something the rest of the market does not seem to care about? There are two reasons … $100 billion pointed at one SKU is unheard of. Consider the iPhone took a decade to get to that revenue. We will not lazily assume it’s coming until I get “all systems are a go” signs across the board. You can’t put $100 billion into production and ship in volume without a splash in the large supply chain that builds these AI systems. There was no splash (yet).
Secondly, we need Nvidia to break out of the range bound price it’s been in for 9 months (between $110 and $150). While many might be saying “whew, Nvidia beat/raised,” my stance is “where’s the catalyst that’s going to take this thing higher?” I had an answer for you a few months back – it was the NVL systems, which I stated would cause “fireworks.” To be range bound trading between $110 and $150 since May of 2024 is not exactly fireworks, and thus we need to look closely at whether Nvidia’s next move is to break out or break down. As stated, by being range bound, the valuation has become more attractive, and we are watching this piece closely. This is my number one reason for seeing a breakout above $150 right now (valuation).
While many investors will rightly hold Nvidia through ups/downs (you’ll see IOF hold for years to come), our firm is competing with the world’s best tech portfolios – which means complacency is not something you’ll see here. Our Members greatly benefit from our need to compete as we question everything – especially if we are overweight any specific outcome.
Please reference the most up to date trading plan here.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA at the time of writing and may own stocks pictured in the charts.
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