Nvidia's ($NVDA) financial indicators are signaling a positive trajectory, suggesting the company is set for remarkable sales growth in the upcoming quarters, according to UBS Securities. In its recent fiscal second-quarter report, Nvidia outperformed Wall Street expectations, attributing its success to the surge in demand for generative artificial intelligence, culminating in record revenue of $6.7 billion.
The company's purchase commitments and obligations soared to $27.8 billion, as noted by Chief Financial Officer Colette Kress during a recent earnings call. UBS highlighted that these purchase commitments and supply obligations, which have historically been indicative of future growth, saw a significant uptick for the first time in multiple quarters.
Analyst Timothy Arcuri emphasized a particularly bullish indicator: a remarkable increase of approximately $10 billion in what UBS classifies as Nvidia's total supply. "We believe this foreshadows very strong revenue growth over the next few quarters, starting with the January quarter as Blackwell will layer on top of Hopper," Arcuri commented. Looking ahead, Nvidia anticipates substantial revenue from its Blackwell offerings, projecting to receive "several billion dollars" in the fourth quarter.
Kress reiterated that shipments of the Hopper graphics processing unit platform are expected to rise significantly in the latter half of fiscal 2025, driven by robust demand amid a competitive market landscape. UBS's analysis suggests that Hopper volumes are poised for continued growth, potentially peaking in the fourth quarter of the fiscal year.
Nvidia anticipates operating expenses to increase by mid-to-upper 40% range, a pattern often associated with positive revenue visibility in the future, according to Arcuri. Additionally, Nvidia is optimistic about its software sales, including software-as-a-service and support revenue, estimating an approach toward a $2 billion annual run rate by the end of the current year.
Arcuri pointed out that while this revenue stream is still small, it significantly opens new hardware market avenues, with expectations of recurring revenue potentially reaching into the multiple billions in the near future. For the current quarter, Nvidia projects consolidated revenue to be around $32.5 billion, with a slight margin of error.
This projection surpasses Street estimates but falls short of the $33 billion to $34 billion range anticipated by many investors. Despite a 5.5% drop in Nvidia's shares during Thursday's late-afternoon trading session, stocks have rallied by 140% year-to-date. Analysts remain optimistic, with Arcuri stating, "Given the progress of domestic offerings from Huawei and others, we do not foresee the US imposing additional constraints on Nvidia's competitiveness in China.
Demand from major cloud service providers remains strong, suggesting we are not nearing a decline in growth just yet." In a gesture to bolster shareholder value, Nvidia's board approved an additional $50 billion share repurchase authorization, enhancing its commitment to returning value to investors..