Nvidia’s sales forecast fails to meet lofty expectations

Nvidia, the chipmaker at the heart of the artificial intelligence boom, gave a revenue forecast that fell short of some of the most optimistic estimates, stoking concern that its explosive growth is waning.

Third-quarter revenue will be about $32.5 billion, the company said Wednesday. Though analysts had predicted $31.9 billion on average, estimates ranged as high as $37.9 billion. The company also signaled that it was working through production snags with its highly anticipated new Blackwell chip, weighing on the shares in late trading.

The outlook threatens to tamp down an AI frenzy that has transformed Nvidia into the world's second-most-valuable company. The chipmaker is the key beneficiary of a race to upgrade data centers to handle AI software, and its sales forecasts have become a barometer for that spending boom.

The shares fell about 4 percent in extended trading after the report was released. They had more than doubled this year through Wednesday's close, following a gain of 239 percent in 2023.

Get Trendlines A business newsletter from Globe Columnist Larry Edelman covering the trends shaping business and the economy in Boston and beyond.Enter Email Coming into the announcement, there was concern that Nvidia was having problems with its new Blackwell design. Nvidia acknowledged that there were issues with production, saying that it was making changes to improve its manufacturing yield — the number of functioning chips that come out of factories. At the same time, the company said it expects to bring in "several billion dollars" of revenue in the fourth quarter from the product.

"The anticipation for Blackwell is incredible," chief executive Jensen Huang said in a statement.

Nvidia is coming off a string of quarters that shattered Wall Street expectations — even as analysts continued to raise estimates. But most of that growth has come from a small group of customers. About 40 percent of Nvidia's revenue stems from large data-center operators — companies like Google and Meta Platforms Inc. — which are pouring tens of billions of dollars into AI infrastructure.

Though Meta and others have increased their capital expenditure budgets this earnings season, there's been concern that the amount of infrastructure being put in place exceeds current requirements. That could lead to a bubble. But Nvidia's Huang has maintained that this is only the beginning of a new era for technology and the economy.

Expectations are lofty. Nvidia has been the best performing stock in the S&P 500 Index this year, eclipsing gains by all other semiconductor stocks. At a market value of more than $3 trillion, Nvidia is worth roughly the same amount as the next 10 largest chipmakers combined.

Nvidia made its name by selling video-game cards, but is now best known for so-called AI accelerators. These chips, derived from its graphics processors, are used to develop artificial intelligence software by bombarding it with information.

The process, known as training, makes AI models better at recognizing and responding to real-world inputs. Nvidia's components are also used in systems that then run the software, a stage known as inference, and help power services such as OpenAI's ChatGPT.

Last quarter's topped Wall Street projections, and the Santa Clara, Calif.-based company's board approved an additional $50 billion in stock buybacks.

Nvidia's revenue more than doubled to $30 billion in the second quarter, which ended July 28. Excluding certain items, profit was 68 cents a share. Analysts had predicted sales of about $28.9 billion and earnings of 64 cents a share.

Nvidia got a jump on other chipmakers because its technology was well-suited to the needs of AI. But rivals are trying to catch up. Advanced Micro Devices Inc. is now its closest competitor, with Intel — once the world's biggest chipmaker — trailing further behind. Their combined revenue from the market is only about 5 percent of Nvidia's total.

Nvidia's data-center division — now by far its largest source of sales — generated $26.3 billion of revenue last quarter. Gaming chips provided $2.9 billion. Analysts had given targets of $25.1 billion for the data-center unit and $2.79 billion for gaming.

Blackwell is expected to generate a fresh wave of growth when it rolls out in the second half of the year. Analysts have downplayed concerns about delays, noting that the company still enjoys huge demand for its current generation of products. That could help Nvidia cope with any delays without a big financial hit.