Nvidia's $46.7B Quarter Fuels Debate: AI Surge Or Bubble Peak?

Nvidia’s closely watched earnings have routinely become a Rorschach test.

For some, they confirm the data center boom is just beginning — and for others, they always seem to hint at an imminent slowdown.

The most closely watched event on Wall Street this week was Nvidia’s earnings report, viewed as the latest gauge of artificial intelligence’s vitality and the momentum driving the ongoing data center build-out.

But investors are split on the results. Optimists highlighted Nvidia’s record second quarter and revenue beat, while skeptics pointed to a 1% sequential decline in data center sales and weaker growth forecasts as possible signs that hyperscaler demand is easing.

Media coverage reflected the divide. The New York Times framed the results as “A Sign The A.I. Boom Isn’t Slowing Down,” while The Wall Street Journal reported that the “lackluster outlook stoked jitters about future demand.”

Shares of Nvidia slipped almost 3% Wednesday after the results.

The drop wasn’t a sign Big Tech is losing its appetite for AI, though, Jake Behan of Direxion told MarketWatch. Rather, it underscored how little clarity the numbers offered on whether, after three years of breakneck growth, demand for AI compute and data centers is nearing its limit.

“If you were waiting for clear signs of a slowdown in AI, you didn’t exactly get it,” Behan said. “When any company trades at such high multiples, anything short of exceptional starts to look like a problem.”

Revenue jumped 56% from a year earlier to $46.7B, topping Nvidia’s guidance, while profit surged more than 59%. The gains came even as the company lost billions in China sales because of the Trump-era export limits.

Nvidia, which surged from obscurity to become the world’s first $4T company last month, is now treated as the AI sector’s bellwether. Executives on Wednesday’s analyst call went to great lengths to project a bullish picture of future demand.

CEO Jensen Huang highlighted $600B in data center and compute spending this year by the four major hyperscalers — nearly double the level two years ago. He projected $3T to $4T in total AI and data center investment by decade’s end, with industry growth of 50% in the next year.

“We're in the beginning of this build-out,” Huang told analysts. “The next several years — surely through the decade — we see really fast-growing, really significant growth opportunities ahead.”

Analysts on Wall Street quickly echoed Huang’s upbeat outlook. 

Wedbush analyst Daniel Ives said Nvidia’s “robust” results show the tech sector’s strength and that “the AI revolution is heading into its next gear of growth despite the current headwinds with China.”

Jefferies analysts struck a bullish note as well, calling the demand outlook “rock solid” and reporting no evidence of waning hunger for data center chips. They cited Huang’s remark that companies outside China are snapping up Nvidia’s lower-grade H2O chips, designed for China, simply to secure any graphics processing units they can.

Still, some investors aren’t convinced Nvidia’s performance guarantees an endless trajectory of chip and data center demand.

Analysts pointed to warning signs, including a 1% quarter-over-quarter dip in data center compute revenue. Though partly the result of blocked China sales, it still drew scrutiny on Wall Street, given that overall revenue growth slipped to its slowest pace in more than two years.

Nvidia’s Q3 outlook also stirred concern. The company forecast $54B in revenue, a figure broadly matching Wall Street’s view but read by some as evidence that momentum is slowing.

The tempered guidance hasn’t quelled concerns that Amazon, Microsoft and Google, together making up about 50% of Nvidia’s data center revenue, may pull back their record AI and data center outlays if returns don’t keep up. 

Concerns about an AI bubble cooled last month as hyperscalers unveiled record capital expenditure plans worth hundreds of billions for new data centers. But skittishness quickly returned after a report on AI startup failures and downbeat comments from OpenAI’s Sam Altman triggered a market sell-off.

Analysts skeptical of AI’s staying power said Nvidia’s results offered little reassurance that hyperscalers won’t cut back on data center outlays in the next two quarters. As eMarketer’s Jacob Bourne put it, data center sales, “while massive, showed hints that hyperscaler spending could tighten at the margins if near-term returns from AI applications remain difficult to quantify.”

Jay Goldberg of Seaport Research struck a similar note, telling clients on Wednesday that Nvidia’s results only confirmed his bearish outlook for long-term AI demand.

“We are increasingly concerned about near-term demand as few companies have found ways to drive revenue from AI beyond coding tools,” Goldberg wrote. “The level of AI spending has gotten to the point that the industry needs use cases for larger audiences.”