Less Dumb Investing

Nvidia just posted another monster quarter, but the market’s reaction was muted—because at this point, the company is a victim of its own success. Revenue for Q4 came in at $39.33 billion, beating Wall Street’s $38.05 billion estimate, and adjusted EPS hit $0.89, topping expectations of $0.84. Even more importantly, Nvidia is guiding for $43 billion in Q1 revenue, above the $41.78 billion consensus, signaling that the AI-fueled surge isn’t slowing down anytime soon.

But the days of tripling revenue year-over-year are in the rearview mirror. Nvidia’s Q1 guidance implies 65% annual growth—still massive, but nowhere near the 262% growth from the same quarter last year. The law of large numbers is catching up.

The biggest driver remains Nvidia’s data center business, which now accounts for 91% of total revenue—up from 83% last year and just 60% in early 2023. That segment pulled in $35.6 billion last quarter, up 93% YoY, and well above the expected $33.65 billion. A big part of this surge is Blackwell, Nvidia’s next-gen AI chip, which has already generated $11 billion in sales, far outpacing initial estimates of $3.5 billion. CEO Jensen Huang called demand for Blackwell “amazing,” while CFO Colette Kress noted it’s the fastest product ramp in company history.

Meanwhile, Nvidia’s gaming business continues to shrink in relevance. It reported $2.5 billion in revenue for the quarter, down 11% YoY and missing the expected $3.04 billion. While Nvidia did release new gaming GPUs using its Blackwell architecture, it’s clear that AI is the company’s dominant focus going forward.

Gross margins declined slightly to 73% from 76% last year, driven by the higher costs of newer data center products. While investors might be worried about this trend, Nvidia still maintains gross margins far higher than the semiconductor industry average of around 51.5%. The shift to Blackwell is expected to keep margins in the low-70% range for now, but that’s still industry-leading profitability.

Despite all this strength, Nvidia’s stock barely moved after hours and remains down 11% from last month’s DeepSeek-induced AI panic. The problem? The bar is just that high. Nvidia’s revenue beat was “only” $1.2 billion—its smallest margin of outperformance since the AI boom began. Investors are also nervous about AI’s long-term trajectory, especially after Microsoft hinted at scaling back some data center expansions. But Huang shrugged off fears of AI becoming a short-lived bubble, arguing that new AI applications will require exponentially more compute power. According to Kress, advanced reasoning-based AI models could demand 100 times—or even millions of times—more compute than current models.

Another key concern is competition. Big tech giants like Amazon, Microsoft, and Google are developing their own AI chips, but Huang dismissed the threat: “Just because the chip is designed doesn’t mean it gets deployed.” Nvidia has a deeply entrenched position, and cloud providers still account for roughly half of its data center revenue. The real challenge is maintaining dominance as companies look for cheaper alternatives.

Looking ahead, all eyes are on Nvidia’s upcoming GTC conference, where it’s expected to unveil what’s next beyond Blackwell. The market wants reassurance that the AI demand story isn’t losing steam. Nvidia is still growing at an insane rate compared to its trillion-dollar tech peers, whose revenue growth averaged just 11.8% last quarter. But at a $3 trillion valuation, the company is no longer just riding the AI wave—it needs to keep proving it’s staying ahead of it.

Nvidia remains the king of AI chips, and this latest quarter reinforced that dominance. But with sky-high expectations, even a blowout report isn’t enough to move the stock. Now, it’s all about what comes next.