Source: Content compiled from Bloomberg and others

Nvidia Corp. on Wednesday forecast fourth-quarter revenue that was slightly above expectations, but still fell short of the high expectations of some investors who have made it the world's most valuable company.

Shares of the Santa Clara, California-based company fell about 1% in after-hours trading. They closed 0.8% lower during the regular session.

Nvidia is about to launch its powerful Blackwell line of artificial intelligence chips, which will initially hurt the company's gross margins but will improve over time.

Nvida Chief Financial Officer Colette Kress told analysts on a conference call Wednesday that the new line of processors has been well received by Nvidia's customers and that the company's fourth-quarter processor sales will exceed initial expectations by billions of dollars.

"We will deliver more Blackwell units this quarter than we had previously expected," said CEO Jensen Huang.

Gross margins on the new chip line will initially be below 70%, but will rise to around 70% as production ramps up, Kress said.

The company expects fourth-quarter revenue of $37.5 billion, plus or minus 2%, while analysts on average are expecting $37.09 billion, but forecasts have ranged as high as $41 billion, according to data compiled by the London Stock Exchange.

The growth rate is still very impressive, thanks to huge demand for Nvidia's chips, which are at the heart of complex generative AI systems, but it is a marked slowdown from previous quarters, when Nvidia's sales mostly at least doubled.

"The AI era is in full swing, driving the global shift to NVIDIA computing," Huang said, referring to two high-performance AI chips. "Demand for Hopper and anticipation for Blackwell in full production is incredible as foundational model makers scale pre-training, post-training and inference," he said.

The prospect suggests that enthusiasm for AI may be outpacing reality. Nvidia investors have pushed shares nearly 200% higher by 2024, making it the world’s most valuable company. But the chipmaker has struggled to meet demand for its products this year and has faced production hurdles.

Nvidia's new product line, Blackwell, is now "in full production," said CEO Jensen Huang. Demand for the much-anticipated product is expected to outstrip supply in the coming quarters. Huang added that there is still demand for the previous design, Hopper.

"AI is transforming every industry, company and country," he said in the statement. "With breakthroughs in physical AI, investments in industrial robots have surged, and countries have realized the importance of developing national AI and infrastructure."

But some investors are expecting a more explosive quarter. Nvidia shares fell about 2% in after-hours trading following the announcement. Earlier, the company closed at $145.89 in New York.

Nvidia's fourth-quarter forecast shows that the company's revenue growth will slow to about 69.5% from 94% in the third quarter.

Expectations for Nvidia were high ahead of the results, with Nvidia shares up more than 20% in the past two months and hitting an intraday record high on Monday. The stock has nearly tripled so far this year and more than ninefold in the past two years.

"Investors have gotten used to big results from this company, but it's getting harder to do that," said Ryan Detrick, chief market strategist at the Carson Group. "It's still a very solid report, but the fact is that when the bar is so high, it's a lot harder."

Even though demand for Nvidia's chips is soaring, supply chain issues are making it hard for Nvidia to deliver the big revenue growth that made it a Wall Street darling.

One of the bottlenecks in its chip supply is the limited advanced manufacturing technology capabilities of the company's manufacturing partner TSMC.

The company's third-quarter adjusted earnings per share were 81 cents, compared with expectations of 75 cents per share.

Sales in the data center division, which accounts for the bulk of Nvidia's revenue, rose 112% to $30.77 billion in the quarter ended Oct. 27. The division grew 154% in the previous quarter.

Nvidia's sales have been boosted as cloud computing companies continue to expand data centers capable of handling the complex processing needs of generative artificial intelligence.

The company said it had fixed the chip's design flaw by changing the blueprints used by TSMC to make the Blackwell chip.

"The rumors of potential supply chain issues are clearly causing some concern," said Bob O'Donnell, an analyst at TECHnalysis Research.

The company said adjusted gross margins shrank to 75%.

Despite falling short of expectations, the company doubled its revenue for two consecutive years

Despite the disappointing outlook, Nvidia's growth rate over the past two years has been stunning. Its sales are on track to double for the second year in a row, and its profits now exceed its total revenue in the past. The company's shares have risen more than 200% so far this year. The race to develop and apply artificial intelligence has driven Nvidia's rapid growth. With a market value of $3.6 trillion, Nvidia is the world's most valuable public company and has a huge impact on the stock market. Earlier this year, it drove about a quarter of the S&P 500's gains.

In the fiscal third quarter ended October 27, Nvidia's revenue rose 94% to $35.1 billion. Excluding certain items, profit was 81 cents per share. Analysts had predicted sales of about $33.25 billion and earnings of 74 cents per share.

Revenue at Nvidia's largest division, the data center unit, doubled from the previous year to $30.8 billion. That beat Wall Street expectations.

But the unit's networking revenue has fallen sequentially, and the business is more dependent than ever on a small group of customers: cloud service providers. That group, which includes companies like Microsoft Corp. and Amazon.com Inc.'s AWS, accounted for 50% of data center revenue, up from 45% in the previous period.

Investors hope that number will fall to show that AI use is spreading across the economy.

The company's biggest moneymaker is its accelerator chips, which help develop AI models by pumping data into them. The frenzy over AI services has fueled endless demand for the product since OpenAI's ChatGPT chatbot debuted in 2022.

Other recent earnings reports have also sent strong signals for AI. Nvidia customers including Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. have reaffirmed their commitment to invest heavily in AI infrastructure.

Nvidia wants to stay ahead of its competitors by accelerating the pace of innovation. That includes a commitment to update its product line every year. With Blackwell, it has a new set of chips that are faster and more capable of connecting to other semiconductors.

But manufacturing challenges have slowed the rollout of Blackwell. Right now, the company says Nvidia can't fill all orders. Huang said supply will be plentiful once production ramps up.

Nvidia warned again Wednesday about supply constraints for Blackwell.

"Key questions around Blackwell yield ramp and customer concentration remain major concerns," Emarketer analyst Jacob Bourne said in a note. "There is little room for execution missteps in 2025."

Nvidia's quarterly revenue has only missed analyst estimates once in the past five years. And, in recent times, it has beaten expectations by as much as 20%, setting a high bar for its performance.

Revenue from its data center unit alone exceeds the combined revenue of its two closest rivals, Intel Corp. and Advanced Micro Devices Inc. Net income this year is on track to surpass that of Intel, which has been the largest company in the chip industry for decades.

Nvidia is best known for selling graphics processors, but has since discovered that the technology can also be used for artificial intelligence. Its chips help software models during the training process, allowing them to learn to recognize and respond to real-world inputs. Nvidia's components are also used in systems that run software, known as the inference phase, and power services such as ChatGPT.

The Santa Clara, California-based company has rapidly expanded its product line to include networking, software and services, and fully built computer systems. Huang is lobbying around the world for wider adoption of his technology and trying to promote its use in businesses and government agencies.

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