The financial results for Nvidia, set to be released on Wednesday, have left investors weighing the sustainability of heavy spending on artificial intelligence (AI) chips.
So far, the company has been at the top in the AI semiconductor market, a key driver of its advantage. However, recent developments in lower-cost AI models have pushed down its value, leaving investors to ponder over the indispensability of its premium chip and how the company can maintain its grip on the AI sector
Chinese AI firm DeepSeek has introduced models that claim to match the performance of Western alternatives at way lower costs. This development sent shockwaves through the industry earlier this year, leading to Nvidia suffering a record $593 billion single-day market value loss.
Nonetheless, Nvidia’s revenue is expected to show strong growth. Analysts predict a 72% rise in revenue for the fourth quarter, reaching $38.05 billion, though this would be its slowest growth rate in nearly two years. The forecast for the first quarter is positive, with projections of a 60% revenue increase.
Tech giants, including Microsoft and Meta, have reiterated their commitment to expanding AI-driven infrastructure, ultimately sustaining demand for Nvidia’s high-performance chips. “The CapEx plans communicated by Meta, Microsoft, Google and Amazon… paint a very positive picture of the near-term demand backdrop for Nvidia,” said John Belton, portfolio manager at Gabelli Funds, which holds shares in the company.
One of the biggest factors in Nvidia’s performance will be the rollout of its Blackwell series chips. These advanced AI chips, including the GB200 NVL72 system, represent a well-thought-out transition from selling standalone GPUs to offering fully integrated computing systems.
However, the production ramp-up has been complex and costly, squeezing profit margins. Analysts estimate that Nvidia’s adjusted gross margin could decline by over three percentage points to 73.5% in the fourth quarter.
Manufacturing challenges have added to Nvidia’s issues. Taiwan Semiconductor Manufacturing Company (TSMC), its primary chip supplier, has faced difficulties expanding its capacity for advanced packaging—an essential process for AI chip production. Initial Blackwell shipments were also delayed due to design flaws and low yield rates, though these issues have since been resolved.
Nvidia however stated in November, that Blackwell’s revenue would go beyond initial projections of several billion dollars in the fourth quarter.
“Blackwell has been a complicated set of products to launch,” noted Belton. “With the magnitude of out-performance that investors have become used to—Nvidia’s delivery could be smaller this time around, just given some of these dynamics with the Blackwell launch.”
