Michael Huber 
Nvidia ‘s financials released after Wednesday’s close weren’t quite the $4 billion “Triple Lindy” of upside many investors were hoping for. But they were darn close, which avoided a feared massive sell-off in one of the three U.S. companies in the $3 trillion market cap club. Revenue for at the AI semiconductor powerhouse’s fiscal 2025 second quarter jumped 122% year-over-year to $30.04 billion, well ahead of analysts’ forecasts of $28.7 billion, according to data provider LSEG. While that was about a $1.3 billion beat, it was short of the $2 billion beat that Wall Street talked itself into. Adjusted earnings-per-share increased 152% to 68 cents, exceeding the LSEG-compiled consensus estimate of 64 cents. Revenue guidance for the current quarter was for a nearly $2.5 billion sequential increase. Together with the fiscal Q2 beat, we got about $2 billion out of the $4 billion. On top of the strong results, we did get the bullish long-term commentary called for in the “Triple Lindy,” with CEO Jensen Huang saying that “Hopper demand remains strong, and the anticipation for Blackwell is incredible.” Throw in the $50 billion buyback authorization and maybe we can call it “Two and a half Lindy.” NVDA YTD mountain Nvidia YTD Continuing its rough patch since its record closing high above $135 on June 18, Nvidia stock dropped more than 7 percent in after-hours trading. That, however, was not surprising to us because Jim Cramer said during Wednesday’s Morning Meeting that there was a lot of “hot money” in the Club name waiting to get washed out. We’re talking about investors who bought the stock but don’t have much conviction or care for the long-term and would sell on anything short of blowout numbers. Jim doesn’t see a need to step in first thing Thursday morning and buy the dip. Let the sellers finish unloading. But, for those interested in the long-term, we think Nvidia’s future is as bright as ever. We are, therefore, reiterating our buy-equivalent 1 rating and $ 150-per-share price target. Bottom line In another example of just how important it is to factor in buy-side expectations when thinking about how to position into an earnings release, Nvidia’s strong results and solid outlook were not able to keep the sellers away. Shares were down because expectations got out of control plain and simple. The results, the guide and everything we heard on the call served only to increase our conviction that Nvidia really is the greatest semiconductor company in the world at the heart or the accelerated computing megatrend. With the yearly gains in central processing unit (CPU) compute power far more incremental these days than back when Moore’s Law was in full effect, graphics processing unit (GPU) accelerated computing, which is Nvidia’s specialty, is the key to everything from autonomous driving to robotics, generative AI, digital twins, computer-aided drug discovery and so much more. In addition to an overall stronger fiscal Q3 quarter guide, CFO Colette Kress said on the post-earnings call that purchases of the current Hopper chip architecture were accelerating despite customers “gearing up to adopt Blackwell,” the company’s next-generation artificial intelligence chip platform. Based on Kress’ commentary, we still don’t see an air pocket in demand despite slight delays in Blackwell’s launch. The CFO added that the “Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal year 2026.” The company is already guiding for “several billion dollars in Blackwell revenue for the fourth quarter.” While management didn’t provide an official revenue guide beyond the current quarter, we think it safe to say that as it stands now, demand will sustain into calendar year 2025. That confirms a common theme we heard when the cloud companies, which are major Nvidia customers, reported their latest financials, that the risk was underinvestment in AI hardware, not overinvestment. Cloud providers and big tech companies are in the midst of an arms race and everybody is fighting to be first or at the very least, remain relevant. They have no chance at all of doing that if they don’t continue to upgrade their hardware. Are customers going to sign up or stick with Microsoft’s Azure if it only offers Hopper architecture while Amazon Web Services and Google Cloud offer Blackwell when it’s released? Are consumers going to keep using OpenAI’s ChatGPT if it’s running off Hopper while Meta Platform’s Llama 3 leverages Blackwell for inferencing? They have no choice but to keep advancing and that means tapping Nvidia for the latest and greatest data center technology on the planet. Nvidia Why we own it : Nvidia’s high-performance graphic processing units (GPUs) are the key driver behind the AI revolution, powering the accelerated data centers being rapidly built around the world. But this is more than just a hardware story. Through its Nvidia AI Enterprise service, Nvidia is in the process of building out a potentially massive software business. Competitors : Advanced Micro Devices and Intel Most recent buy : Aug 31, 2022 Initiation : March 2019 Software revenue also appears to be on a very strong trajectory, according to Kress. “We expect our software, SaaS, and support revenue to approach a $2 billion annual run rate exiting this year with Nvidia AI enterprise notably contributing to growth.” That’s double the $1 billion run rate at the end of the fiscal year 2024’s fourth quarter. That plays into our expectation that the nascent software business is a major opportunity and key to future growth and will be supportive of the stock’s valuation, given its higher margin recurring nature. It should also serve to reduce volatility throughout the business cycle, not unlike what we’ve seen with Apple as Services sales there have been becoming a larger share of overall sales. That buffer takes some pressure away from quarter-to-quarter iPhone performance. Kress also reiterated that health care “is also on its way to being a multibillion-dollar business as AI revolutionizes medical imaging, surgical robots, patient care, electronic health record processing, and drug discovery.” Quarterly commentary During Nvidia’s fiscal second quarter, better-than-expected sales were driven by strength in all key segments, including a Data Center segment revenue record. The better-than-expected $26.27 billion in Data Center sales mostly came from Compute such as Hopper GPUs, while the remaining $3.67 billion came from Networking such as InfiniBand and Spectrum-X. About 45% of segment sales came from cloud service providers, including Azure, AWS, Google Cloud, and over 50% came from “consumer internet and enterprise companies,” as generative AI, model training and inferencing continue to drive demand for Nvidia’s cutting edge offerings. Management estimates that over the past four quarters, inference demand was responsible 40% of Data Center revenue. When you ask ChatGPT — or other generative AI models a question — a question, the answer you get back is inferencing at work. The model is “inferring” the answer to a novel question based on its training. Regarding China, Kress said, “Data Center revenue in China grew sequentially in Q2 and is a significant contributor to our Data Center revenue. As a percentage of total Data Center revenue, it remains below levels seen prior to the imposition of export controls. We continue to expect the China market to be very competitive going forward.” World governments also continue to be a very exciting source of demand, with Huang saying during the call’s Q & A that “in terms of revenue, it certainly is a unique and growing opportunity, something that surfaced with generative AI and the desires of countries around the world to have their own generative AI that would be able to incorporate their own language, incorporate their own culture, incorporate their own data in that country. So, more and more excitement around these models and what they can be specific for those countries. So, yes, we are seeing some growth opportunity in front of us.” On the call, Kress said, “Automotive was a key growth driver for the quarter as every auto maker developing autonomous vehicle technology is using Nvidia in their Data Centers. Automotive will drive multibillion dollar in revenue across on-prem and Cloud prem and will grow as next generation AV [autonomous vehicle] models require significantly more compute.” Growth in the Automotive segment was driven by “new customer ramp in self-driving platforms and increased demand for AI cockpit solutions,” she added. Regarding robotics, an area that we think can prove to have massive upside over the next decade and one that Nvidia is uniquely equipped to tackle given the years of research and experience it has in coding the real-world laws of physics into digital simulations, Kress said, “Boston dynamics, BYD electronics, intrinsic, Siemens, skill AI, and paradigm robotics are using the Nvidia Isaac robotics platform for autonomous robot arms and mobile robots.” On Gaming and AI personal computers, Kress called out sequential growth in console, notebook, and desktop PC sales, adding that “demand is strong and growing in channel inventory remains healthy.” In the Professional Visualization segment, Kress said that “demand is being driven by AI and graphic use cases including model fine-tuning and Omniverse-related workloads.” Digital twins continue to be a key use case as companies leverage Nvidia Omniverse to make virtual models of physical locations. “The world’s largest electronics manufacturer Foxconn is using Nvidia Omniverse to power digital twins of the physical plants that produce Nvidia Blackwell systems. And several large global enterprises including Mercedes-Benz signed multiyear contracts for Nvidia Omniverse Cloud to build industrial digital twins factories.” Guidance Taking a closer look at guidance, Nvidia’s fiscal third quarter may not have beaten the Street’s estimates by the magnitude some were hoping for, but it’s far from disappointing. Revenue of $32.5 billion, plus or minus 2%, was above consensus of $31.77 billion. Adjusted gross margins are expected to be 75%, plus or minus 50 basis points, a tad below estimates of 75.5%, at the midpoint and below the in-line 75.7% in fiscal Q2. Expectations for adjusted operating expenses in the fiscal third quarter appear to be in line with expectations at about $3 billion. (Jim Cramer’s Charitable Trust is long NVDA, AAPL, MSFT, AMZN, META, MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Nvidia‘s financials released after Wednesday’s close weren’t quite the $4 billion “Triple Lindy” of upside many investors were hoping for. But they were darn close, which avoided a feared massive sell-off in one of the three U.S. companies in the $3 trillion market cap club.
