Nvidia Forecast Eases AI Bubble Concerns

61% of revenue came from four major customers
Shares rise 5% in extended trading after forecast
Data-center segment sales surpass analyst expectations

Nvidia reported accelerating growth in its third quarter, easing investor worries about a potential AI bubble. CEO Jensen Huang dismissed fears that the AI boom is unsustainable, highlighting strong demand from cloud providers. The company reiterated that it has $500 billion in chip bookings through 2026, underscoring confidence in long-term prospects. Shares rose 5% in extended trading, adding $220 billion in market value after recent declines.

Earnings and Market Impact

Third-quarter sales increased 62%, marking the first acceleration in seven quarters. Data-center revenue, which makes up most of Nvidia’s business, reached $51.2 billion, surpassing analyst expectations of $48.62 billion. The company forecast fourth-quarter sales of $65 billion, well above market estimates, with gross margins expected to remain in the mid-70% range through fiscal 2027. Strong results also lifted shares of AMD, Alphabet, and Microsoft, signaling broader optimism in the tech sector.

Despite the upbeat outlook, analysts remain cautious. Concerns persist that AI infrastructure spending may not be sustainable. Nvidia sharply increased spending on renting back its own chips from cloud customers, with contracts totaling $26 billion in the third quarter. Four customers accounted for 61% of sales, raising questions about concentration risk.

Circular Economy Concerns

Nvidia has invested billions in AI companies that are also major customers, including a commitment of up to $100 billion in OpenAI. Analysts warn this circular financing could inflate earnings and create vulnerabilities. Stifel analyst Ruben Roy noted that fears about unsustainable spending are unlikely to fade. Summit Insights’ Kinngai Chan added that investors remain wary of the long-term sustainability of capital expenditure growth in the AI sector.

Cloud giants such as Microsoft and Amazon continue to pour billions into AI data centers. Some investors argue that extending the depreciable life of AI compute gear artificially boosts earnings. Nvidia’s growing reliance on a small number of customers intensifies scrutiny of its business model. The company’s strategy highlights both opportunity and risk in the rapidly expanding AI market.

Growth Constraints Ahead

U.S. export restrictions have limited Nvidia’s access to China, pushing the company to explore new markets in the Middle East. The Commerce Department recently authorized exports of up to 35,000 Blackwell chips to Saudi Arabia and the UAE, valued at more than $1 billion. Analysts caution that physical bottlenecks in power, land, and grid access could slow growth despite massive demand. Huang acknowledged the complexity of scaling AI infrastructure, emphasizing the need for careful planning across supply chains and financing.