Why Is Nvidia Stock Falling After Reporting Parabolic Growth?

Expectations were high on the road Nvidiahis (NVDA -2.10%) financial report second quarter of fiscal year 2025. The company has become the de facto standard bearer of the artificial intelligence (AI) revolution. Its graphics processing units (GPUS) provide the computing power needed to create large language models (LLMs) that make generative AI possible.

Growing demand for AI has propelled Nvidia stock into the stratosphere. The stock has gained more than 150% so far this year and more than 750% since the accelerated adoption of AI began early last year (as of this writing).

In recent weeks, however, investors have grown concerned that Nvidia has simply gone too far, too fast, and wonder whether the breakneck pace of AI adoption could continue. Nvidia answered that question with a resounding yes, but given the stock’s parabolic gains, successful results just weren’t enough.

Nvidia GB200 Grace Blackwell AI Superchip. Image source: Nvidia.

By the numbers

In the second quarter, Nvidia generated record revenues of $30 billion, which were up 122% year-over-year and 15% quarter-on-quarter. This gave rise to adjusted earnings per share (EPS) of $0.68. The results beat analysts’ consensus estimates for revenue of $28.6 billion and EPS of $0.64. Revenue also eclipsed management’s forecast of $28 billion.

The headliner was Nvidia’s data center segment — which includes chips used for AI — as revenue of $26.3 billion rose 154% year-over-year and 16% sequentially, fueled by adoption strong AI among cloud computing and hyperscale data center operators.

It wasn’t just artificial intelligence that fueled Nvidia’s growth, although the data center segment dwarfed the results of the company’s other segments (all segment gains year-over-year):

• The gaming segment grew 16% to $2.9 billion.
• The professional viewing segment grew 20% to $454 million.
• The automotive segment climbed 37% to $346 million.
• The original equipment manufacturer rose 33% to $88 million

Nvidia’s gross margin of 75.1 percent was up from 70.1 percent in the previous quarter, thanks in large part to the company’s enormous pricing power. That said, the measure fell sequentially from 78.4% in Q1. The company has previously signaled that margins will moderate for the remainder of the year. CFO Colette Kress cited inventory provisions for its Blackwell chips and product mix for the decline.

What the future holds for us

CEO Jensen Huang noted that demand for its current Hopper chip “remains strong,” calling the anticipation for its next-generation Blackwell architecture “incredible.” He went on to note that in recent industry tests, Nvidia’s Hopper H200 and Blackwell B200 chips “swept” MLPerf benchmark results for AI inference. Despite the best efforts of its rivals, Nvidia’s chips remain the gold standard for AI processing.

Media reports suggested that the new Blackwell chips could be delayed by up to three months due to design flaws, but Nvidia has allayed those fears. “We shipped samples of our Blackwell architecture to customers in the second quarter. Performed a change to the Blackwell GPU mask to improve production throughput. The Blackwell production ramp is scheduled to begin in the fourth quarter and continue through fiscal 2026.”

Another byproduct of Nvidia’s growth trajectory is the sheer amount of cash the company is generating, as free cash flow more than doubled to $13.5 billion. As a result, Nvidia increases its returns for shareholders. The board approved another $50 billion in share buybacks, adding to the $7.5 billion remaining in the existing authorization.

These factors combined to fuel a solid outlook for the third quarter. Management is targeting revenue of $32.5 billion, which would represent year-over-year growth of 80%. That’s a deceleration from the triple-digit growth Nvidia has delivered in each of the past five quarters — but investors have long known that growth of this magnitude can’t continue indefinitely. However, the figures show that investors were apparently disappointed.

Nvidia shares were down about 7% in after-hours trading (at the time of writing), but it’s too early to tell what tomorrow will bring. Taking a step back, the company’s results continue to defy the odds, but a deceleration in its parabolic growth rate was inevitable. Nvidia’s star is still burning strong, and the long-term investment thesis is intact.

Taken together, Nvidia’s sustainable competitive advantage, strong results and robust outlook show that the company still has a long growth path ahead.