4 Important Revelations Nvidia Investors May Have Missed
To say that tech investors were on the edge of their seats last week when Nvidia (NASDAQ: NVDA) reported its results might well be an understatement. The company's graphics processing units (GPUs) have cornered the market for artificial intelligence (AI) processing, making Nvidia the de facto flag-bearer for AI. As such, investors were keenly interested in the company's performance and management's outlook.
However, beyond the headline results were a number of revelations that investors may have overlooked, which provide additional insight into Nvidia's future prospects.
NVIDIA GB200 Grace Blackwell Superchip. Image source: Nvidia.
1. Growing Ethernet opportunity
While Ethernet revenue is currently no more than a footnote in Nvidia's sales, it is quickly gaining ground. Ethernet technology provides the means for devices to communicate with each other on a wide area network (WAN) or local area network (LAN). Nvidia launched its Spectrum-X Networking Platform little more than a year ago, "designed to improve the performance and efficiency of Ethernet-based AI clouds."
The platform has become a big hit with customers and is growing like gangbusters. On the post-earnings conference call, CFO Colette Kress noted there was broad adoption of the technology from cloud service providers, GPU cloud providers, and enterprises because it "delivers 1.6 times the performance of traditional Ethernet."
As a result, Nvidia's Ethernet for AI revenue doubled sequentially, and Spectrum-X is "well on track to be a multibillion-dollar product line within a year."
2. Billions in software sales
One of the biggest contributors to Nvidia's success is the company's approach to chipmaking. Not only does Nvidia design the most technologically advanced processors in the world, but they come bundled with software that helps wring every last ounce of productivity from them. The company offers more than 300 libraries and 600 AI models to help developers succeed.
This has become a growth market for Nvidia. Kress said the company expects "software, software-as-a-service (SaaS), and support revenue to approach a $2 billion annual run rate exiting this year, with Nvidia AI Enterprise notably contributing to growth."
This represents another significant opportunity for Nvidia.
3. Blackwell is on track
One of the biggest issues weighing on Nvidia stock in recent weeks has been the uncertainty regarding the release of the company's next-generation Blackwell processor. Reports surfaced early last month that the cutting-edge AI chip -- which was scheduled to begin shipping later this year -- would have its launch delayed by as much as three months due to a design flaw. Those reports sparked a wave of concern among some investors. If true, a launch delay could cost Nvidia billions of dollars in potential revenue.
Management addressed the issue with its update. The commentary provided by CFO Colette Kress confirmed that Blackwell was on track to begin shipping in the fourth quarter.
We shipped customer samples of our Blackwell architecture in the second quarter. We executed a change to the Blackwell GPU mask to improve production yield. Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal 2026. In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue.
This puts to rest any fears about delays in Blackwell's highly anticipated release.
4. Data center investing continues to soar
The initial phase of AI adoption is ongoing in data centers, particularly among cloud infrastructure providers, as they have the resources necessary to bring generative AI models to life. Some of the biggest names in technology, including Microsoft, Alphabet, and Meta Platforms, have all revealed plans to spend tens of billions of dollars on capital expenditures (capex) over the coming year, with the majority earmarked for the servers and data centers needed to process AI -- which translates to greater sales for Nvidia.
Yet that could be just the beginning. Nvidia CEO Jensen Huang noted on Nvidia's earnings conference call that there's an installed base of roughly $1 trillion in existing data centers, and the vast majority of those are outfitted for general-purpose computing -- with CPUs, but no GPUs. As such, they will require significant upgrades to obtain the computational horsepower needed to handle the rigors of AI. This, in turn, will continue to boost demand for Nvidia chips.
Huang went even further, predicting that the "next $1 trillion" of data centers will be specifically geared toward AI. He went on to point out that Blackwell is "an AI infrastructure platform," designed and optimized "full stack end to end, from chips, systems, networking, even structured cables, power and cooling, and mounds of software."
The resulting system not only handles much greater AI processing but is also much more energy efficient, saving data center operators money immediately. This provides a compelling incentive to upgrade sooner than later, or to build new data centers with AI in mind.
The evidence is clear
Investors are clearly focused on the AI opportunity, which is understandable. The market for generative AI is expected to be worth between $2.6 trillion to $4.4 trillion over the coming decade, according to research compiled by McKinsey & Company.
The evidence clearly shows that Nvidia is busy exploiting every available opportunity to capture its share of the AI windfall, which bodes well for Nvidia investors.
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