Nvidia’s sales surprise is now smaller than when the AI boom started
The chip designer’s still enviable revenue growth only starts to look unimpressive when you compare it to itself.
Of course Nvidia’s revenue growth is slowing. That’s a problem of success thanks to how accomplished the chip designer has been in fueling AI as a powerful investment theme, which has propelled sales from about $7.2 billion in the three months ended April 2023 to $46.7 billion in its most recent quarter.
The colloquial (but technically incorrect) thinking around the law of large numbers, which Amazon CEO Andy Jassy alluded to in explaining why Amazon Web Services wasn’t growing as fast as its rivals, is that the bigger you get, the harder it is to grow as fast.
That period that ended in April 2023 — Nvidia’s fiscal 2024 first quarter, reported on May 24, 2023 — served as the unofficial launch party for the AI boom that’s since dominated stock market activity. Annual revenue growth peaked at 265% for the three months ended January 2024, and has been on a glide path lower since to 56% as of Q2. That’s still enviable! Only five companies in the S&P 500 are growing their top lines at a faster clip, and none of them have a market value of even $150 billion compared to a whopping $4 trillion for Nvidia.
It’s also not altogether unexpected that Nvidia’s revenue surprises have become smaller over time. Even with the typical dance between management and Wall Street to keep expectations in check, there’s less scope to deliver mammoth top-line beats when the eyes of the entire investing universe are squarely focused on the company and its customers. Revenues surprised to the upside by 10% in its fiscal 2024 Q1 and 22% the subsequent quarter before winnowing down to just 1.1% in this latest release. Again, it’s tougher to deliver bigger surprises, in percent terms, off so high of a base.
But what is a little eyebrow-raising, or noteworthy at the very least, is that even in pure dollar terms, Nvidia’s revenues are now beating expectations by less than they did when the chip designer reported results on May 24, 2023. Sales exceeded the consensus estimate by nearly $677 million that quarter, and by $512 million in Q2.
