Nvidia: The AI Boom is Still Thriving

Nvidia has announced a strong forecast for the first quarter, showcasing a fierce demand for its artificial intelligence (AI) chips. This news has helped to alleviate worries about a potential slowdown in the AI sector. The company emphasized robust orders for its next-generation Blackwell semiconductors, describing the demand as "amazing."

For the first quarter, Nvidia expects a revenue of $43 billion (±2%), which exceeds the average market estimate of $41.78 billion. Following the announcement, Nvidia's shares rose initially but experienced some fluctuations in after-hours trading after a substantial 3.7% increase during standard market hours.

The AI Boom Driving Nvidia's Growth

Nvidia, known as the largest beneficiary of the recent AI stock rise, has witnessed its share prices soar over 400% in just two years. CEO Jensen Huang expressed his optimism, stating, "AI is advancing at light speed." The company is making a significant shift toward fully integrated AI computing systems with its Blackwell architecture, which combines graphics chips, processors, and networking capabilities. In the fourth quarter, Nvidia reported $11 billion in revenue from Blackwell-related products, making up 50% of its total data center earnings.

Addressing Investor Concerns

Recently, concerns were raised after a Chinese AI startup, DeepSeek, claimed to have created cost-effective AI models that could compete with those from Western companies. This announcement had led to a significant drop in Nvidia’s market cap, marking the largest single-day loss for a U.S. company. However, analysts are optimistic, believing that Nvidia’s strong first quarter forecast has effectively dispelled these doubts. The company reported adjusted earnings of 89 cents per share, surpassing the expected 84 cents, with Q4 revenue jumping 78% to $39.3 billion, which also exceeded the forecast of $38.04 billion.

Data Center Strength & Market Demand

Nvidia's data center revenue for the quarter reached $35.6 billion, representing an impressive 93% increase and eclipsing estimates of $33.59 billion. Additionally, tech giants like Microsoft and Meta are investing heavily in AI, with committed investments of $80 billion and $65 billion, respectively, despite concerns about potential oversupply in U.S. data centers. Moreover, Chinese companies have been increasing their orders for Nvidia's H20 AI chips, responding to the growing influence of DeepSeek.

Margin Pressures & Future Outlook

While the rollout of the Blackwell architecture looks promising, it comes with increased costs that may impact profit margins. Nvidia anticipates a gross margin of 71% for the first quarter, which is shy of Wall Street's expectation of 72.2%. However, CFO Colette Kress reassured investors that margins would improve to the mid-70% range later this year as production scales up. Furthermore, the U.S. Stargate data center project, initially announced by President Trump, will include the use of Nvidia's Spectrum X ethernet networking technology, boosting the company's data center offerings.

Despite the recent ups and downs in the AI market, Third Bridge analyst Lucas Keh noted that "Nvidia's momentum with hyperscalers remains strong," indicating a continued high demand from major cloud service providers.

Nvidia, AI, Forecast