Nvidia shares fell more than 3% in one trading session earlier this month after inflation data came in hotter than expected. Investors worried that higher inflation could lead to more interest rate hikes. That could raise borrowing costs for companies building artificial intelligence data centers.
However, the share price drop did not reflect Nvidia’s latest business results. The company reported $96.2 billion in revenue for its fiscal second quarter. That was a 106% rise from the same period a year earlier. Data center sales grew even faster, climbing 117%.
The main question is no longer whether companies want Nvidia chips. Instead, investors want to know whether its customers can keep spending at the same pace.
Nvidia sells processors, networking equipment and software used to train and run AI models. Its customers include major cloud providers and AI research companies. Many of these firms need large amounts of money to build and expand their computing systems. As a result, higher borrowing costs could affect future demand.
Still, Nvidia’s latest results suggest that growth remains strong. The market appears to be pricing in a slowdown that has yet to show up in the company’s second-quarter figures.
Demand Now Comes From More Buyers
Nvidia chief executive Jensen Huang said the AI industry has changed over the past year. One major research lab once drove much of the demand for new AI computing systems. Now, several leading AI labs, startups and open-model developers are expanding at the same time.
This wider customer base could help support future sales. Nvidia’s revenue grew at an annual rate of about 66.9% over the past five years. Its latest quarterly growth of 106% shows that sales have accelerated rather than slowed.
The company also expects strong demand to continue. Management forecast fiscal third-quarter revenue of $108 billion, with a possible variation of 2% above or below that figure.
The forecast does not include data center computing sales to China. This means the expected revenue does not depend on a recovery in that market.
Nvidia has also maintained high profit margins while expanding its business. Its gross margin reached 75% in the quarter. Its operating margin over the past 12 months stood at 65.21%.
These figures show that Nvidia keeps a large share of its sales after covering production costs and operating expenses. Strong margins can give the company room to invest in new products and manage changes in demand.
Who Can Keep Paying for AI Chips?
Despite Nvidia’s strong results, concerns about its customers remain. Higher interest rates can make it more expensive to build data centers. They can also raise the cost of financing the computers, power systems and networks needed for AI services.
CoreWeave, a cloud computing company that rents AI computing power, has become one example of this risk. Its shares suffered a sharp one-day decline after a chart showing its bond yields spread online. The move drew attention to the company’s large debt burden and the cost of servicing it.
If AI spending slows, companies that supply chips and computing systems could face pressure. Nvidia may be profitable, but it still depends on customers having enough money to expand their operations.
The issue is especially important as AI infrastructure projects become more expensive. Companies must pay for chips, buildings, electricity, cooling systems and network equipment before they can earn returns from their investments.
Nvidia Seeks More Funding for AI Infrastructure
Nvidia is working with major financial firms to help address the need for capital. Its quarterly report described financing partnerships involving Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR.
The partnerships aim to bring more than $500 billion in outside capital into AI infrastructure over time. However, the plans still require final agreements, so the full amount should not be treated as guaranteed funding.
Such arrangements could help AI companies secure money for data centers and related projects. They may also spread some of the financial burden beyond technology companies themselves.
For Nvidia investors, the key issue is whether spending on AI infrastructure can keep growing without placing too much pressure on customer finances. The company’s latest revenue figures and forecast point to continued demand. Yet debt costs and access to funding remain important risks.
Nvidia’s business performance is strong, but future growth will depend on more than demand for advanced chips. Its customers must also be able to finance the systems needed to use them.
