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Nvidia’s stock has surged nearly fourfold this year and more than ninefold in two years. This growth pushed its market value to $3.6 trillion. Despite strong demand for AI chips, Nvidia faces investor concerns as sales growth shows signs of slowing.

On Wednesday, Nvidia forecasted its slowest revenue growth in seven quarters, disappointing some high-expectation investors. The company’s stock fell 5% after the announcement but recovered slightly, closing after-hours trading down 2.5%. During regular trading, Nvidia’s stock closed 0.8% lower.

Before the earnings report, Nvidia’s stock had climbed over 20%, reaching an intraday record high earlier in the week. Its value increased nearly fourfold this year and over ninefold in the past two years, making Nvidia one of the world’s most valuable companies.

Blackwell AI Chips: Demand, Margins, and Customer Feedback

Nvidia is launching its Blackwell family of AI chips, which initially reduce gross margins but are expected to improve with production scale. Nvidia’s customers have embraced these chips, and the company aims to exceed fourth-quarter sales projections, according to CFO Colette Kress.

Reports of overheating issues with a flagship server featuring 72 Blackwell chips raised concerns. However, CEO Jensen Huang assured investors that the systems have no issues. Major customers, including Microsoft, Oracle, and CoreWeave, are already deploying the liquid-cooled systems. “There are no issues with our Grace Blackwell liquid-cooled systems,” Huang told Reuters. “The engineering is challenging, but we’re in good shape.”

Nvidia’s Blackwell chips are projected to start with gross margins in the low 70% range, rising to mid-70% as production increases. Nvidia’s fourth-quarter revenue is forecasted at $37.5 billion, plus or minus 2%, slightly ahead of analysts’ $37.09 billion estimate.

Slower Revenue Growth Despite AI Demand and Supply Challenges

Nvidia’s growth is slowing, even as demand for AI chips remains high. Fourth-quarter revenue growth is expected at 69.5%, down from 94% in the third quarter.

“Investors have gotten used to large earnings surprises from Nvidia, but maintaining that pace is becoming more difficult,” said Ryan Detrick, chief market strategist at Carson Group. “This report is solid, but with such high expectations, it’s tougher to exceed them.”

Although Nvidia continues to dominate the AI chip market, supply chain constraints have hindered its ability to deliver significant revenue surprises. Analysts like IDC’s Brandon Hoff believe that growth could rebound if Nvidia’s margins exceed 75%.

Production Constraints and Manufacturing Adjustments

Nvidia’s production capacity is constrained by its primary manufacturing partner, TSMC. CEO Jensen Huang did not comment on production issues at TSMC but stated that Nvidia is expanding production lines and improving yields for Blackwell chip production.

Yields, or the percentage of functional chips produced per wafer, are a critical production factor. Nvidia has also resolved a design flaw in Blackwell’s blueprint to support more efficient manufacturing at TSMC.

TSMC’s shares fell 1% during early Asian trading on Thursday.

Data Center Growth and Overall Earnings Performance

Nvidia’s data center division, which drives most of its revenue, posted a 112% increase in sales, reaching $30.77 billion in the quarter ending October 27. This growth rate marks a slowdown from the 154% increase recorded in the previous quarter.

Cloud providers are heavily investing in Nvidia’s chips to support generative AI expansion, fueling strong revenue from data centers. Despite this, Nvidia’s adjusted gross margin slipped to 75%, down from previous quarters.

For the third quarter, Nvidia reported adjusted earnings of 81 cents per share, beating analysts’ forecasts of 75 cents. The company’s data center growth continues to be a strong revenue driver, although its growth rate has moderated in recent months.