As Nvidia prepares to release its earnings report on Wednesday, the company is grappling with mounting challenges related to its highly anticipated Blackwell series of AI chips. A new report from The Information reveals that Nvidia has requested multiple redesigns of the racks for its new Blackwell GPUs to address overheating issues, raising concerns among customers about potential delays.
Engineering Hurdles and Customer Concerns
According to The Information, Nvidia has repeatedly asked its suppliers to modify rack designs in recent months to overcome overheating problems. These changes, coming late in the production process, have sparked anxiety among Nvidia’s largest customers, including Meta Platforms, Microsoft, and Elon Musk’s xAI. Despite these challenges, Nvidia has assured customers that the racks are still expected to be delivered by the end of the first half of 2025, in line with its initial schedule.
This isn’t the first report of difficulties with the Blackwell series. In August, Bloomberg reported that Nvidia faced “engineering snags,” reflecting the company’s struggle to meet soaring demand for its AI GPUs. While such changes to server designs aren’t unusual for Nvidia, the timing has heightened scrutiny, particularly ahead of its critical earnings call.
Earnings Expectations and Market Sentiment
Wall Street is keenly focused on Nvidia’s earnings report, with analysts projecting strong performance despite recent challenges. Goldman Sachs analyst Toshiya Hari has expressed bullishness, forecasting:
- Revenue: $34.3 billion (+14% QoQ, +90% YoY), surpassing consensus estimates.
- Non-GAAP Gross Margin: 75.4%.
- Non-GAAP EPS: $0.79.
Goldman expects Nvidia’s revenue beats, which have narrowed in recent quarters, to expand again in 2025 as the Blackwell ramp gains momentum. The firm also anticipates the upcoming earnings call to provide positive guidance on Blackwell’s rollout and broader commentary on generative AI applications, such as virtual assistants and autonomous vehicles.
Investor sentiment heading into the earnings report is overwhelmingly positive, with many rating sentiment as 9 out of 10, up from the previous quarter. Hedge funds have been net buyers of AI-related stocks since October, and most investors plan to maintain long positions on Nvidia.
Key Focus Areas for Investors
- Blackwell GPU Ramp-Up: Investors are eager for updates on Nvidia’s ability to meet demand for its new Blackwell GPUs despite the reported engineering challenges. Supply-side improvements and delivery timelines will be critical.
- Generative AI Use Cases: Nvidia’s commentary on ROI and adoption of generative AI technologies like large language models (LLMs), robotaxis, and other applications will be closely watched.
- Earnings Guidance for FY2025: Analysts expect the first quarter of FY2025 to be the true breakout period for Nvidia, with Blackwell ramp-up and improved supply conditions driving significant earnings growth.
- Customer Diversification: The company’s ability to expand beyond tech giants like Google, Microsoft, Meta, and Amazon into enterprises and sovereign entities is a key debate.
Stock Performance and Options Activity
Nvidia shares, which closed at $141.98 on Friday, have surged 187% year-to-date but were down 2% in premarket trading Monday. Active options trading ahead of the earnings report reflects expectations of significant post-earnings moves, with call options targeting share prices of $155 and $162.50.
Despite the stock’s rally this year, insiders have been selling shares, adding a layer of uncertainty to the company’s outlook.
The Road Ahead
As Nvidia approaches its earnings release, the stakes are high. The company’s ability to navigate production challenges for its Blackwell GPUs and provide strong guidance will be critical to maintaining investor confidence. With shares already delivering stellar performance this year, any misstep could lead to heightened volatility.
All eyes will be on Nvidia’s management Wednesday as they address the company’s challenges, growth opportunities, and their roadmap for capitalizing on the booming AI market.
