Key facts
- Nvidia's upcoming earnings report is a key test for its growth prospects.
- Investors are scrutinizing Nvidia's role in financing AI infrastructure for customers.
- The company is transitioning to its next-generation Vera Rubin processors.
- Nvidia has arranged significant financing for AI infrastructure buildouts.
- Competition from Big Tech and other chipmakers is increasing.
Nvidia's upcoming earnings report on Wednesday will be closely watched to determine if its new Rubin chips can sustain the company's explosive growth, as some investors express concerns about the long-term viability of the current AI spending boom. The chipmaker, a primary beneficiary of the race to build AI infrastructure, has recently seen its stock face pressure. This scrutiny stems partly from its significant financial commitments to the AI ecosystem, raising fears of 'circular deals' that could artificially inflate demand and distort economic indicators.
Analysts, according to LSEG data, anticipate Nvidia's second-quarter revenue to nearly double from the previous year, reaching $92.18 billion, marking the fastest growth in seven quarters, largely driven by a more than twofold increase in data center sales. Investors are particularly focused on Nvidia's ability to transition customers from its current Blackwell chips to the next-generation Vera Rubin processors, with shipments slated to begin this autumn.
The surge in data center spending, projected to exceed $730 billion this year, is fueled by major tech companies and smaller AI-focused cloud firms like CoreWeave, which receive backing from Nvidia. This spending spree has intensified scrutiny, especially after Nvidia's recent involvement in arranging $500 billion in financing from six major U.S. financial institutions for its customers. Furthermore, Nvidia agreed to guarantee up to $105 billion to help OpenAI secure a 20-year lease for a large data center in Ohio, representing one of its most substantial AI financing commitments.
Brian Mulberry, chief market strategist at Zacks Investment Management, described Nvidia's role as akin to a 'central banking figure in the AI space,' highlighting the risk of total AI exposure without diversification. He emphasized that continued growth in AI tool adoption is crucial for success. Nvidia CEO Jensen Huang defended the company's balance sheet strategy, explaining that it uses its substantial cash reserves to support rapidly growing but still unprofitable customers. He clarified that the OpenAI data-center backstop does not constitute circular financing, as OpenAI will pay for the lease, and Nvidia is securing facilities for its chips for decades.
The successful ramp-up of Rubin chips is critical as Nvidia faces increasing competition. Big Tech companies are developing their own custom chips, and Intel and AMD are offering central processors for AI inference. Morgan Stanley analysts estimate these new chips could generate nearly $9 billion in sales in the third quarter. They anticipate Nvidia will highlight Rubin's contribution to improved AI factory economics over the Blackwell platform, though it may take time to assess Nvidia's market share gains against custom AI chips from major tech firms and competitors like AMD. Analysts project Nvidia's third-quarter sales to rise by 82.8% to $104.20 billion, with adjusted gross margins expected to remain around 75% for both the second and third quarters.