Nvidia's Earnings Show Continued AI Boom But Leave Bubble Concerns Unresolved

Nvidia’s massive earnings beat provides yet more evidence that the AI data center boom is continuing to accelerate. Whether it is a bellwether for a potential artificial intelligence bubble is another story.

Nvidia, which has a nearly 90% share of the market for the graphics processing units that power AI computing, delivered third-quarter results Wednesday that beat Wall Street’s expectations and triggered a stock market rally.

The company's quarterly revenue soared to $57B, nearly $2B higher than anticipated. 

Nvidia’s profits increased 65% year-over-year and 245% compared to the year before that, reaching $31.9B. Quarterly data center chip sales rose 44% to $51B.

The company's stock price, which had slumped in recent weeks, rose more than 5% Thursday morning following the report. Those gains have since been erased as the market declined midday Thursday. 

Last quarter's earnings figures confirm the stratospheric growth trajectory of a firm that has ridden the AI wave to become the first $5T public company. Nvidia projects that its revenue this quarter will rise 65% year-over-year to $65B, far exceeding Wall Street’s projections for moderating growth of $57B. 

Nvidia is also regarded as a leading demand indicator for the data center sector, with chip sales driving the need for the facilities built to house them. In that regard, Nvidia's rising revenue projections echo accelerating capital expenditure plans announced by major tech firms just weeks ago. 

“We guided to a much larger quarter next quarter,” CEO Jensen Huang told Fox Business on Wednesday. “And so the guidance that we provided is crazy good. I would agree with that. But we're in the beginning of a very long-term build-out of the fundamental infrastructure of humanity, which is computing.”

While headlines and commentators touted Nvidia’s strong earnings as curbing bubble fears, the better-than-expected performance didn't actually serve as evidence for or against the primary concerns that underpin the bubble thesis. 

The bubble narrative has centered around concerns that tech giants like Amazon, Microsoft and Meta, as well as AI-specific companies like OpenAI and CoreWeave, are engaged in an unprecedented spending spree on AI infrastructure, including Nvidia’s GPUs, that may not yield commensurate returns on that investment.

Nvidia’s booming revenue and profitability confirm that spending on chips and data centers is accelerating. The company’s fundamentals don’t answer questions about whether that spending is worth it. 

Still, speaking on its earnings call Wednesday evening, Huang opened his remarks with a direct rebuttal to what he characterized as a misguided AI bubble narrative.

“There's been a lot of talk about an AI bubble,” Huang said. “From our vantage point, we see something very different.”

Skeptics are taking a “simplistic” view of how AI investments will generate returns in the short-term future, according to Huang, and are failing to recognize the ways they are driving new revenue already. 

While there is a great deal of focus on the profitability of AI-specific companies — particularly those with consumer-oriented products like OpenAI or Waymo — such generative and agentic AI applications are only one-third of the picture when it comes to evaluating return from AI spending, Huang said. 

Two other transformative “platform shifts” are taking place that receive less attention, he said. AI is already replacing and improving the profitability of the applications behind internal recommender systems, ad targeting software and search engines that are some of the largest revenue drivers for the major tech firms. At the same time, these tech giants are saving money by shifting non-AI computing tasks from traditional servers to the GPU infrastructure used for AI. 

“As you consider infrastructure investments, consider these three fundamental dynamics. Each will contribute to infrastructure growth in the coming years,” Huang said.

Analysts generally responded positively to Huang’s remarks, with TD Cowen’s Joshua Buchalter calling them a “strong qualitative pushback on ‘AI bubble’ narratives” in a note to clients Thursday. 

“Jensen offered a very bullish outlook for AI, and we readily agree,” Cantor Fitzgerald’s C.J. Muse said in a note titled AI Bubble? NO, AI is Actually Underhyped Now.

Nvidia’s leadership addressed another major investor concern: the company’s massive investments in some of its own customers.

Deals like Nvidia’s $100B investment in OpenAI and $10B investment in AI developer Anthropic have been tied to GPU sales agreements, sparking accusations of circular financing, in which Nvidia is effectively paying for its own product. 

While such arrangements have drawn comparisons to the vendor financing that was prevalent in the lead-up to the dot-com crash a quarter-century ago, Huang framed the investments as critical for strengthening the foundations of the still-nascent AI trade and ensuring close technical collaboration with its largest customers.

He also defended the deals as simply good investments in some of the fastest-growing companies in the world. 

“With respect to the investments, this is really, really important work that we do,” Huang said. “We’re expanding the reach of our ecosystem, and we’re getting a share of investment in what will be a very successful company — oftentimes a once-in-a-generation company.”