Another monster set of results, but can they spur a stock price recovery?

Nvidia posted another monster set of results for Q4. It reported that revenue grew by a whopping $39.3bn, higher than the $38bn expected last quarter, and a 45% increase on the $22bn of revenue it reported a year ago. Net income, or profit, also jumped to $22.09bn, up from $19.36bn in Q3, and gross profit margin was in line with expectations at 73%. The forecast for future revenues, which is one of the most anticipated parts of Nvidia’s results, also saw a decent uptick, the company expects revenues for this quarter to be $43bn +/- 2% for Q1.

The stock whipsawed in the after-hours market. Initially rallying hard, Nvidia then sold off before staging another recovery. For now, this earnings report does not look likely to give the stock the boost that it needs to erode its year-to-date losses.

Investors could be holding back for two reasons. Firstly, gross profit margin ‘only’ met expectations and the forecast for Q1 was 71%, below estimates. To put this into context, Microsoft managed gross profit margin of 68.7%, and chip maker AMD reported gross profit margin of just over 50% for Q4. Nvidia’s profit margins hold up well against its peers, and there is also a good reason why gross profit margin is slowing, albeit from a high level: margins are being squeezed by bringing new and more complicated products to  market, like the Blackwell chip. It’s a tough crowd out there, but we do not think that a small drop in the profit margin is enough to call this a ‘bad report’, and investors may eventually look past the issue with gross margin forecasts.

However, although the share price is now rallying, it has done so by less than average on results day for Nvidia. The question now is, will investors boost their enthusiasm for the stock on Thursday?

Blackwell delivers the goods

Nvidia’s latest chip was always going to be the star of the results show, and the company was at pains to tell investors just how strong demand for Blackwell is. The new chip contributed $11bn to revenue in Q4 and said that demand for Blackwell chips is ‘amazing’ and is achieving ‘billions of dollars of sales in Q1’.

DeepSeek: it’s good for us, according to Nvidia execs

Nvidia executives also faced some tough questions on DeepSeek, China’s new AI kid on the block. The company had obviously spent a long time rehearsing how to spin the DeepSeek threat. Nvidia now sees the new way of training AI models using DeepSeek’s blueprint  as a boost to demand for Nvidia chips, and not just any old chips, but their most advanced ones. Any fears about demand for Blackwell chips in the face of DeepSeek are being put to bed by Nvidia. They are reminding the audience that Blackwell chips and future chips can be used across the entire AI spectrum, unlike DeepSeek’s model.

China restrictions does not get in the way of revenue growth

Regarding China, Nvidia’s revenue from the region was lower due to trade restrictions by the Biden government. These restrictions have been extended by Trump, so Nvidia sees Chinese revenue staying the same for this quarter, which is not bad considering the mountain it faces to do business in the world’s second largest economy. It may also boost investor sentiment that issues in China are not impacting future revenue growth.

Can investors look through some pockets of weakness in Nvidia’s earnings report?

Customer concentration remains a risk for the chip maker and  Nvidia is still reliant on the same large customers, including Microsoft, Meta, Super Micro and Google. This has long been the case, but investors may start to see this as a fundamental weakness for Nvidia going forward.

Added to this, there some pockets of weakness in this report aside from the gross margin. Q4 gaming revenue and networking revenues were lower year-on-year, and inventory levels rose. Inventories totaled $10.1bn last quarter, which is higher than the $7.7bn recorded at the end of September 2024. This can be a warning sign that demand for chips is slowing, alternatively, it could be a sign that shipments of the most advanced chips have increased this year.

Nvidia’s financial might grew in the last quarter. The company’s cash pile rose to $43.2bn, up from $26bn a year ago. This could help Nvidia weather any future storms in the AI sector, or a downturn in the US economy, as a cash pile that big means that investors might start to focus on Nvidia’s defensive qualities.

Overall, this is a strong earnings report, but the landscape for AI has changed, and so has investors’ enthusiasm for it. The below average gains in Nvidia’s stock price post this earnings report is a sign that tech is not the only sector out there, and US exceptionalism is losing its luster. Investors are choosing Asia, China in particular, and Europe, over US tech names right now, and we do not think that Nvidia’s results will change that. However, Trump’s 25% tariffs on EU goods coming into America, and a slowing US economy could be events that kickstart Nvidia’s 2025 recovery down the line.