Interpretation of Nvidia's Q2 FY25 financial report: "Can hold up" in the short term. There are no surprises but we still need to look at some basic data and talk about their latest financial performance.

01 Q2 Revenue report

Their fiscal year is not our natural year. Using their fiscal year definition, we are already halfway through 2025. Yes, we are actually still in 2024. Don't be fooled.

I won't say much about the quarter-on-quarter and year-on-year comparisons. Don't waste our energy and time.

The performance (operating income) exceeded 30 billion US dollars, and the gross profit margin dropped a bit. Their CFO explained that there were several reasons, such as the launch of new products, financial adjustments to inventory, etc. The difference is not big, so I won't say more.

The financial guidance for the next quarter is that the operating income is 32.5 billion US dollars (+/- 2%) and the gross profit margin is 74.4% (+/- 50 basis points, basis

point). Why is the gross profit margin guidance still downward?

What about my prediction? Their operating income for the next quarter will be 34.5 billion US dollars. Why is it $2 billion higher than theirs? Looking at their guidance for the past five quarters, they have underestimated by about $2 billion. Can it be undervalued for a long time? Shouldn't the CFO explain it?

In addition, we can notice that in the past two quarters, almost half of the net profit was used to repurchase shares.

In terms of market segments, data centers are still the only ones that stand out. Although they have always said that automotive applications are important, they actually only account for 1% of the company's operating income. Their gaming business is still quite stable. It depends on whether Sun Wukong can help them make progress in the second half of the year and exceed $3 billion.

02 Several key points of the financial report

One of the reasons for the market adjustment before was that the delayed release of Blackwell might affect the performance. From today's press release, it seems that it is still positive, or one positive and one negative.

Positive: samples are already being shipped; negative: mass production and delivery will not be available until the fourth quarter.

The market reaction is very sensitive. The stock price plummeted during the delayed trading period after the stock market closed. Why do I say that the market reaction is very sensitive? They still estimate that the operating income for the next quarter is 32.5 billion US dollars without Blackwell. Without affecting their short-term performance and without any obvious competitors, wouldn't it be better to keep the new Blackwell business? Wouldn't it be better to put it in the pocket as a driving force for sustainable growth in future performance?

"Blackwell samples are being shipped to our partners and customers."

The CEO's words are very clear. The demand for the existing product (Hopper) is still very strong, and the market's expectations for the new product (Blackwell) are high.

"Hopper demand remains strong, and expectations for Blackwell are incredible."

As mentioned before, their stock repurchases are very strong. The previously authorized amount is almost exhausted. Their board of directors approved an additional $50 billion, and there is no expiration date. Stock repurchases are generally considered to be a manifestation of the board of directors and management's confidence in the company's stock price. Compared with cash dividends, it is to reinvest the money earned in the company's stock, preventing shareholders from using the dividends received for other purposes. At the same time, the number of shares issued by the company is reduced, and the value of each share is theoretically increased.

"NVIDIA returned $15.4 billion to shareholders in the form of stock repurchases and cash dividends during the first half of fiscal 2025. As of the end of the second quarter, the company had $7.5 billion of stock repurchase authorization remaining. On August 26, 2024, the Board of Directors approved an additional $50 billion of stock repurchase authorization with no expiration date."

03 Market reaction

Their stock price fell 2.1% during normal trading hours and nearly 7% during extended trading hours. I believe that after the market calms down overnight, their stock price will stabilize tomorrow.

This title is really my feeling and the question I asked myself. What's next? What's next after Nvidia? This AI trend has been going on for more than a year. Although I think their stock price can still "hold up" in the short term, Newton and I have the same view that Apple will always fall. How do we face it? When will it happen?

Everyone should be very cautious in investing in the second half of the year. I don't want to say too negatively. Nvidia is a good company. It's not wrong to buy its stock, but it may be expensive.

04 At the end

During the conversation with analysts, one analyst asked about the return rate of the entire AI industry. I felt that their CEO's response was a bit "anxious". He tried hard to emphasize that AI investment has a return, and those data centers can make money immediately after they are built.

But so far, in addition to creating huge wealth, has the entire AI story really solved our human problems? The earth is still getting hotter, geopolitical risks have not decreased, there is no help for the employed population, and the unemployment rate does not seem to have dropped. I still can't get a car during peak hours.

Philosophical question, what has AI really done for us?