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Leading AI-relevant chipmaker Nvidia Inc’s (ticker: NVDA) earnings for its second quarter (Q2) beat analysts’ consensus estimates by delivering $30.04 billion versus an expectation of $28.7 billion and adjusted earnings per share (EPS) of $0.68 versus an expectation of $0.64. Despite projecting $32.5 billion in revenue over the current quarter versus expectations of $31.7 billion and Chief Financial Officer Colette Kress expressing confidence in the company being able to several billion dollars in value of its next-generation Blackwell products (currently being tested as samples) in its fourth quarter, the company’s stock dropped by 8% in extended trading. When markets opened, the stock fell another 6.38%.
Trend AnalysisAs of the first half (H1) of its ongoing fiscal year (FY) 2025, trends indicate that the company’s explosive growth in FY 2024 isn’t going to be repeated in the current FY:
Source: Company Information; Leverage Shares analysis
Note: Net Income Per Share has been restated with the stock split factored in.
Outside of CFO Kress’ projections on sales of Blackwell products, the company is looking to close overall revenues at a 16% deficit relative to the previous year albeit with net income per share effectively closing the year with a 12% over the previous FY.
The previous FY was the beginning (and possibly the end) of the “AI Stock Boom” which Nvidia led. A 126% rise in revenue was accompanied by an over fourfold boom in net income per share while operating expenses more-or-less ran flat as expenses incurred in research and sales preparation in the previous few years paid off. While the stock’s high valuation does create a massive bump in stock-based compensation, it clocks in at 4% of net revenue – far lower than the levels seen over the past six FYs.
Current-generation hardware inventory is over twice that of the previous FY, which could possibly indicate that either demand is flagging or that expected order volume might have been an overshooting on actual demand.
Source: Company Information; Leverage Shares analysis
As the company went “corporate”, it became increasingly dependent on a small number of clients: Microsoft, Meta Platforms, Google and Amazon together contribute over 40% of Nvidia’s total revenue1.
Source: Bloomberg and Yahoo! Finance
Factors for ConsiderationCurrently, the breadth of investing public is pondering as to whether the speculation-level high valuations imparting on certain names in the semiconductor space can be deemed sustainable. As the article about Nvidia’s top fabrication partner TSMC indicated2, institutional investors have grown skeptical over whether promises of high capital expenditure by “Big Tech” are justifiable given marginal contributions by AI-driven processes in supplanting human labour. This particularly affects Nvidia, given its high exposure to a handful of clients leading the consumption of its products.
The company’s centering of focus on Blackwell chips also has a significant market limitation factor: as it stands, the current-generation A100, H100, A800 and H800 chips are forbidden from being exported to China, which is a key market for the company – standing at almost 17% by the end of FY 2024.3 In a similar vein, the company’s Blackwell chips are almost certain to be banned as well, given their enhanced AI-relevant processing capability. While China’s tech giants have doubled capital spending on AI infrastructure in the year so far, the company hobbled in terms of client breadth and ever-more dependent on its existing small band of clients.
Roughly about 10% of the company’s Q2 revenue ($3.7 billion) came from the sale of networking products. In this space, bête noire and (almost literal) cousin AMD, Inc (ticker: AMD) is aiming to close the gap: roughly ten days before Nvidia’s earnings release, AMD announced a $4.9 billion acquisition of ZT Systems4, a leading AI compute infrastructure and storage solutions provider in a bid to provide enhanced services to datacenter clients. As the article on AMD’s earnings indicated5, the company’s footprint among corporate clients had substantially increased this current FY.
With a host of startups (such as Sambacore) scrambling to provide next-generation computing hardware to select set of clients outside of China and existing solutions in the market largely being deemed more than sufficient to handle current AI-relevant processing loads and a dimming outlook on a repeat of explosive capital investments, the company’s ability to have sustained sales volumes over a long horizon comes into question.
In ConclusionWithout sustained sales volumes in the outlook, conviction stills and high valuations are likely to be tested. While “instituitionals” aren’t likely to start offloading in bulk any time soon, there is very little incentive to acquire more. However, the likelihood of a paring of exposure in a “risk-off” exercise in favour of a more secular exposure to the universe of investable assets increases.
Despite splurging $15.4 billion in H1 2025, $7.5 billion of board-authorized capital for share buybacks had remained unutilized in Q2 2025. The company is topping this amount up with an additional $50 billion for share buybacks to prop up valuations. While this might indeed help ameliorate the speed with which the share value will depreciate, given the loss of sky-high conviction, this doesn’t alter the forward outlook: as far as the company’s products are concerned, it’s a buyer’s market with a small number of buyers and an almost-equal (if not greater) number of sellers.
Buyer-seller dynamics are very much a play in motion with no great incentive to either “buy the dip” or “sell the crest”. At the same time, there is precious little reason to load up and hold over a long term. While the company did start offering dividends as of FY 2023, the dividend yield is currently vanishingly small and of little incentive for dividend-focused investors. While the company remains an integral part of the hardware industry with great products and services, it is entirely divorced from the stock’s valuation which remains massively distorted on account of the massive pile-on across much of FY 2023 and FY 2024.
Note: In addition to the Nvidia-based LSE favourite ETPs by Leverage Shares, professional investors can also consider the recently-launched NVDI, the IncomeShares NVIDIA (NVDA) Options ETP which replicates a covered call strategy on the stock itself, for tactical actions on the stock’s trajectory.
Footnotes:
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If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
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