NVIDIA's latest earnings report delivered a much-needed boost to the market, but the optimism proved short-lived as investor concerns about AI's sustainability resurfaced.
The chipmaker's stellar Q3 performance initially calmed nerves on Wall Street. Revenue reached $35.1 billion, with data center sales soaring 112% year-over-year to $30.8 billion, surpassing expectations. Non-GAAP EPS of $0.81 represented 103% growth, while net income nearly doubled to $19.3 billion. The company's bullish Q4 guidance of $37.5 billion revenue and 73.5% gross margins further lifted sentiment.
CEO Jensen Huang emphasized strong demand for both current Hopper and upcoming Blackwell architectures, with 13,000 Blackwell samples already delivered to customers. The new chip, offering 30x better AI inference performance than its predecessor, could generate "billions" in Q4 revenue alone, with Morgan Stanley projecting $200 billion in Blackwell sales next year.
However, the relief rally quickly faded. Despite NVIDIA's 5% after-hours pop, the Nasdaq fell 2.15% the next day, with NVIDIA itself dropping 3.2%. The Cboe VIX volatility index hit 26.05, its highest since April, signaling growing unease.
Analysts note a coordinated shift toward safer assets, with Nationwide's Mark Hackett describing investor sentiment as "quite poor." While NVIDIA's fundamentals remain robust - its data center business now exceeds most chipmakers' annual revenue - concerns center on whether AI companies can monetize their massive infrastructure investments.
The company's $100 billion investment in OpenAI, xAI, and Anthropic, while strategically securing future chip demand, has raised eyebrows. DA Davidson's Gil Luria warned these "circular transactions" where NVIDIA funds buyers of its own chips contribute to sustainability concerns.
Historical parallels loom large. Some compare the current AI spending surge to the dot-com bubble, with IMF's Gita Gopinath hearing "echoes" of that era. Yet Federal Reserve Chair Powell distinguishes today's profitable tech giants from the 2000s' revenue-less startups.
OpenAI exemplifies the tension - burning $5 billion annually while committing to $1.4 trillion in infrastructure contracts. Google CEO Sundar Pichai acknowledged "irrational exuberance" in the sector but maintains AI's transformative potential justifies investment, as evidenced by Google's $60 billion new data center projects.
As NVIDIA's market cap retreats from $5 trillion to $4.4 trillion, the central question remains: Can AI's promise outpace its staggering costs before investor patience wears thin?
