Huang Renxun no longer has preferential market treatment
Latest update time：2024-09-18
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The article comes from the official account: Zimubang (ID: wujicaijing)
Editor | Zhao Jinjie
Written by | Bi Andi
"High standards, strict requirements" is the most appropriate phrase for NVIDIA. The market's expectations for NVIDIA are extremely high.
On August 28, Eastern Time, Nvidia released its second quarter financial report for fiscal year 2025. In terms of performance, Nvidia's performance was all positive: revenue exceeded $30 billion, and both revenue and net profit increased by more than double. In addition, Nvidia also announced a $50 billion stock repurchase plan.
Even so, Nvidia's stock price still fell nearly 7% after the U.S. stock market closed.
High growth alone is no longer enough to satisfy investors. Looking to the future, investors are constantly asking Nvidia for reassurance: Will the AI wave continue, and will high growth continue?
Even in 2023, when Nvidia was making great strides, Huang Renxun took every opportunity to emphasize the "threat" and the "sense of crisis", which seemed "Versailles" at the time. Now it seems that Huang has once again taken the lead and seen the crisis of being a "shovel seller".
Standing at the top is like standing on the edge of a cliff, and Huang Renxun knows this very well. Now he is staring into the abyss. After the financial report was released, the "stubborn" decline in the stock price is the distant echo of a stone falling into the abyss.
It is no longer possible to "take the lead slowly", but Huang Renxun is still taking Nvidia on the road of "building high walls and storing up food" by developing software business and accelerating the pace of acquisitions. However, the market has limited patience and competitors continue to emerge, leaving Huang Renxun with little time to strengthen his confidence.
Nvidia's second quarter financial report for fiscal year 2025 showed strong performance.
Quarterly revenue was $30.04 billion, up 122% year-on-year, higher than the expected $28.668 billion; net profit was $16.599 billion, up 168% year-on-year; non-GAAP diluted earnings per share were $0.68, up 152% year-on-year, higher than the expected $0.64.
However, after the earnings report was released, Nvidia's stock price fell nearly 7% in after-hours trading.
Since Nvidia’s performance has gone from strength to strength and has exceeded Wall Street’s expectations, why is the market still not buying it?
If we only look at the financial report, what may affect the market's perception are mainly the challenges faced by Nvidia's new generation chip Blackwell, its dependence on major customers for revenue growth, and Nvidia's forecasts for the future.
Let’s talk about Blackwell first.
In March this year, Huang Renxun demonstrated Blackwell at the NVIDIA GTC conference held in San Jose, California. As NVIDIA's new generation of AI chips, its performance is quite strong. For example, GB200 can provide 30 times the performance improvement for large language model inference loads and reduce costs and energy consumption by 25 times. NVIDIA's major customers (such as Microsoft, Google, Meta, etc.) are all busy deploying supercomputers, and Blackwell is almost destined to attract much attention.
However, not long ago, foreign media revealed that the Blackwell chip was found to have design defects during production, and Nvidia may have to postpone its mass production for three months or even longer.
When the earnings report was released, Nvidia CFO Colette Kress admitted that there were problems with the Blackwell chip before and said that improvements had been made. He also said that the fourth fiscal quarter (corresponding to the end of this year and the beginning of next year) is expected to bring billions of dollars in revenue to the company.
In addition, the performance report shows that in the second quarter of fiscal year 2025, Nvidia's gross profit margin decreased compared with the previous quarter. Nvidia disclosed that the main reason was "inventory reserves for low-yield Blackwell materials and an increase in the portfolio of new products in data centers", and said that it may continue to be affected in the future.
In other words, Nvidia's next cash cow, Blackwell, has proven to be more challenging than expected.
Reliance on major customers for revenue growth is also a common problem for Nvidia. In terms of business, Nvidia's data center business accounted for the majority of revenue in the quarter, with revenue of $26.3 billion, a year-on-year increase of 154%. Its revenue share has reached as high as 88%, of which revenue from cloud service providers accounts for about 45%, and revenue from consumer Internet and enterprise companies accounts for more than 50%.
In other words, most of Nvidia's growth is contributed by a small number of its customers, namely large data center operators such as Google and Meta. Although Meta and others have increased their capital expenditure budgets when they released their financial reports, the outside world is still worried that the number of AI infrastructure exceeds current demand, which is the so-called "bubble."
Let’s talk about predictions.
Nvidia expects revenue to grow 75.8% to 82.9% year-on-year in the next fiscal quarter, while analysts expect a maximum revenue growth of 109.2%. While Wall Street's optimistic expectations remain at triple-digit growth, Nvidia itself expects revenue growth to slow to double digits for the first time after five consecutive months of triple-digit growth.
As WestPark Capital analyst Kevin Garrigan commented, investors have high expectations, and it is not enough for Nvidia's revenue outlook for the next quarter to be only slightly higher than the market average expectations.
JJ Kinahan, CEO of online broker IG Group North America, put it more bluntly:
“I don’t know what numbers Nvidia can come up with that will make people happy.”
The outside world has "high standards and strict requirements" for Nvidia, and high growth alone is no longer enough to satisfy the market, and Huang Renxun is well aware of this.
Although Huang Renxun looked quite relaxed while drinking coffee in a video interview with Bloomberg after the release of the financial report, Huang Renxun was clearly well prepared for this performance report, and he prepared a "but" for almost every ominous information.
The Blackwell chip may have encountered some challenges, but Huang Renxun revealed in the interview that its samples have been sent to customers "all over the world" and promised that there will be sufficient supply in the future. In addition, Huang Renxun emphasized that in addition to Blackwell, customers are snapping up the most advanced Hopper chip currently.
The data center business currently relies heavily on large data providers, but Nvidia specifically mentioned the Chinese market at the earnings conference.
CFO Collett said that due to export controls, data center revenue from China is still lower than before, but China's data center revenue increased quarter-on-quarter in the quarter and became an "important contributor" to Nvidia's total data center revenue.
There were rumors that Nvidia would launch a new special chip based on the Blackwell architecture for the Chinese market to meet the needs of the Chinese market. Previously, Nvidia has launched a number of special chips for the Chinese market to hold on to this important market in the context of the "chip ban". Judging from Nvidia's statement, the credibility of the news has increased.
Regarding the market's concerns about the "AI bubble", Huang Renxun emphasized his optimism about the demand prospects for AI technology. In a conference call, he described the need for GPUs: "You have more and more, more and more (demand) (you have more on more on more)", and planted hope in the future, "We will also have a good performance next year."
Huang Renxun's bigger move is that while announcing the results this time, Nvidia announced a new $50 billion repurchase plan.
On August 26, 2024, the board of directors approved an additional $50 billion in stock repurchase authorization with no expiration date. In the first half of fiscal 2025, the company returned $15.4 billion to shareholders in the form of stock repurchases and cash dividends. As of the end of the second quarter, the company had $7.5 billion in remaining stock repurchase authorization.
This is seen by the outside world as a new measure to appease investors.
In May this year, Apple also announced a $110 billion stock repurchase plan when it released its second quarter financial report for fiscal year 2024. The repurchase scale was the largest in Apple's history. In that quarter, Apple's overall sales fell 4% year-on-year, and iPhone sales also fell 10% year-on-year, but after the results were announced, the stock price rose 7% after the market, which was considered to be the result of the $110 billion repurchase.
Some commentators believe that although Huang Renxun anticipated possible market disappointment and proposed a large-scale repurchase plan, it still failed to stop the stock price from falling.
But in fact, before Nvidia released its financial report, the options market had already "booked" high volatility, and the implied stock price volatility of Nvidia options was as high as 10%. It should be noted that since 2018, Nvidia's decline on the day of its financial report has not exceeded 8%.
Judging from the results, although the decline could not be avoided, thanks to Huang Renxun's efforts, Nvidia's stock price still "held up" and did not experience a "big collapse" as expected.
Huang Renxun's management philosophy has always been to prepare for the worst and do his best. Standing on the top of the mountain means that the abyss is right beside him, and he knows this better than anyone else.
“Everyone’s fists are clenched tighter as the quarter goes on, asking, ‘How long can this last?’ ” said Timothy Arcuri, senior semiconductor analyst at UBS. “The debate isn’t about whether they have good numbers, it’s about whether the music will hit its stride next year and then stop. I think it will continue for a while.”
When people outside ask “how long can this situation last”, Huang Renxun will only ask earlier and more frequently.
After OpenAI and ChatGPT set off a global AI wave at the end of 2022, Nvidia, as a major chip supplier in the AI market, soared. At the age of 31, Nvidia has become one of the top three companies in the world by market value, with a market value of over $3 trillion, and once competed with Apple for the first place.
But behind the scenes, 61-year-old Huang Renxun is wary of Nvidia becoming the next Sun Microsystem. "He's trying to remind people not to be 'Sun' anymore," an Nvidia employee revealed in an interview with Business Insider.
Sun Microsystems, like Cisco, also experienced a rise during the dot-com bubble and then a crash. Its operating system was popular early on, and the company's market value peaked at $200 billion in 2000, but ultimately, as competitors caught up, Sun failed to shift to the more lucrative software field. In 2009, Sun was acquired by Oracle for $7.4 billion.
Therefore, meeting the expectations of the outside world in the highly anticipated hardware business is only one aspect of Huang Renxun's efforts. On the other hand, Huang Renxun has been working hard to expand Nvidia's business and diversify it, including cloud server leasing and software business.
In this financial report, Nvidia specifically emphasized that not all of its $26.3 billion in revenue from its data center business came from AI chips, of which $3.7 billion came from Nvidia's network products.
Last year, the company developed its own cloud computing product, DGX Cloud, where customers pay $37,000 per month to access and control one of its supercomputers.
This DGX Cloud is an important step for Huang Renxun to develop software services. His method is to rent back the GPUs sold to cloud service providers, have Nvidia employees further optimize them, and then rent them out to DGX Cloud users. In other words, sell GPUs to cloud service providers, and then build your own cloud in someone else's cloud. What's more terrible is that Nvidia is directly competing with these cloud service providers for customers. Cloud service providers are thinking about how to reduce their dependence on Nvidia every day, and Huang Renxun can't just sit there and wait for death.
From a more macro perspective, Huang Renxun has previously stated that Nvidia is building not just GPU processors, but AI factories
- new data centers focused on AI generation, including CPUs, GPUs, NVlink, InfiniBand, and Ethernet switches. Last October, Nvidia also announced an expansion of its cooperation with Foxconn, with the focus on the construction of AI factories.
At present, when it comes to Nvidia's competitors, the first ones that come to mind are often old players in the chip industry such as AMD and Intel, or large technology companies that are actively developing their own chips such as Microsoft and Google. But in the future, Nvidia's "AI Factory" is expected to become a direct competitor to Tesla's Dojo supercomputer, which is used to train Tesla's neural networks to support, train and improve fully autonomous driving.
As noted analyst Ben Thompson puts it: “Nvidia is neither a hardware company nor a software company: It’s a combination of both.”
In addition to developing diversified businesses internally, Huang Renxun also extends his reach outward as much as possible. According to statistics from Zhidongxi, Nvidia has acquired AI and data center-related companies at a rate of one per month in the past four months, such as Israeli data center management company Run:ai, Israeli end-to-end deep learning platform developer Deci, and data center fault automation processing technology company Shoreline, further enhancing its technology accumulation in related fields.
In November 2023, Nvidia launched its latest generation of chips, the H200. At that time, Huang Renxun said at an event: "We don't need to pretend that the company has always been in danger. In fact, we have always been in danger, and we know it deeply."
At that time, this statement seemed a bit "Versailles", as Nvidia's stock price was soaring and a new generation of chips was launched amid cheers. But now we know that Huang Renxun not only has a vision that is one step ahead in the AI field, but also has a lot of anxiety that is one step ahead of others.
Although his vision is big, his career has not yet been completed. It remains unknown whether Huang Renxun can truly achieve the diversification of Nvidia and get rid of the "curse of high expectations."
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