Nvidia delivers a record. The market wants more | Weekend Intelligence #27

The week belonged to companies more than to macro. Nvidia delivered another exceptional quarter and, after a brief hesitation, the market believed in an outlook that reaches years into the future. Meta bought peace in court over a dispute concerning the protection of minors, and similar platforms will likely face a similar bill. Europe, meanwhile, was dealing with the ECB's hawkish tone and accelerating inflation, so the better mood remained on the American side of the Atlantic.

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Nvidia delivered another record, the market wants even more

For the quarter ended July 26, Nvidia reported revenue of $96.2 billion, up 106% year over year, with data center revenue of $89.0 billion (+117%). The current-quarter outlook is $108 billion ±2%, versus a consensus of around $105 billion. The initial after-hours reaction was negative, but it turned around after the CFO's comments on further growth: on Thursday the stock closed roughly 9% higher, and on Friday it gave back 3.3%.

The numbers need to be read against expectations, not against last year. Revenue beat the consensus by 4.5% and the midpoint of its own guidance by 5.7% - the fourteenth consecutive quarter above its own forecast, though with a smaller beat than the historical average of over 8%. Thursday's rally therefore rewarded the outlook, not the past: the market was given a reason to believe the boom has more years ahead.

More important is the quarter-over-quarter arithmetic. The revenue increase from Q1 to Q2 was $14.6 billion, while the new guidance implies only $11.8 billion of additional growth. The absolute dollars added each quarter have stopped growing - and this first derivative of the boom is what suppliers, data center developers, and equity investors watch most closely.

Colette Kress also said that fiscal 2028 revenue would grow by about 70%, while the consensus expected 45%. The outlook is supply-constrained: demand, according to customer forecasts, is growing at a pace approaching 100%, and data center growth is driven by the Blackwell Ultra ramp, to be followed by the new Rubin platform.

The price of this pace is paid in margins. From 75.0% in Q2, gross margin is heading to 74% now, and to 71-72% in Q4 due to more expensive memory components; it is expected to return to 72-73% only in fiscal 2028, after higher prices are reflected. Margin is shifting to memory suppliers - and Nvidia intends to win it back by raising prices, which increases the bill for hyperscalers.

The outlook includes no revenue from compute chips in China, although the company is returning to that market with initial sales of the H200. The demand side is supported outside China: Amazon Web Services plans to deploy another 2 million Nvidia GPUs between 2027 and 2028.

The targets rely on years far in the future - Raymond James raised its target to $352 at a 22x multiple of 2028 estimates, Stifel to $315 from $282, while the stock traded around $220 on Friday. Whether the optimism is conservative or stretched will be shown by the Q4 margin trough, the pace of the Rubin platform ramp, and the moment China first appears in the outlook as a non-zero item.

Micron's margin exceeded Nvidia's

Micron is profiting from the memory crisis more than anyone else: for the third fiscal quarter, reported at the end of June, it posted a non-GAAP gross margin of 84.9% on revenue of $41.46 billion. After this week's results, Nvidia is heading in the opposite direction - from 75% to 71-72%. The component supplier thus earns more on every dollar of AI infrastructure than the accelerator designer around which the entire system is built.