Nvidia faces growth test as Rubin debut meets AI financing scrutiny

Nvidia faces growth test as Rubin debut meets AI financing scrutiny Aug 25 : Nvidia's results on Wednesday will test whether the company's latest Rubin chips can drive another period of explosive growth, with some investors questioning the sustainability of the AI spending boom. The chipmaker has been the biggest beneficiary of the race to build AI infrastructure. Recently, though, its stock has come under pressure as the company has pumped billions of dollars back into the AI ecosystem, stoking fears about its role in so-called circular deals that could artificially inflate demand and distort broader economic signals. Nvidia's shares have risen 11.8 per cent so far this year and lagged major rivals, with the company briefly ceding its position as the world's most valuable firm to Apple last month. On average, analysts expect its second-quarter revenue to nearly double from a year earlier to $92.18 billion — the quickest pace of growth in seven quarters — driven by an over twofold increase in data center sales, according to data compiled by LSEG. Investors, however, are increasingly focused on how quickly Nvidia can transition customers from its Blackwell chips to its next-generation Vera Rubin processors, with shipments expected to begin this autumn. Driving that growth is a data-center spending spree by Big Tech that is set to exceed $730 billion this year, as well as ballooning outlays at smaller, AI-focused cloud companies such as CoreWeave that are backed by Nvidia. AI BACKSTOPS RAISE CONCERNS Scrutiny of that spending has intensified after Nvidia this month helped arrange $500 billion in financing from six major U.S. financial institutions for its customers building AI infrastructure. Last week, Nvidia also agreed to guarantee up to $105 billion to help OpenAI lease a massive data center in Ohio for 20 years - one of its biggest AI financing commitments. "This makes them a kind of central banking figure in the AI space," said Brian Mulberry, chief market strategist at Zacks Investment Management, which holds Nvidia shares. "The real risk is total AI exposure with no diversification; the key for this to be successful is that adoption rates of AI tools must continue to grow." CEO Jensen Huang has argued the logic behind Nvidia using its balance sheet to support the boom is simple: the chipmaker is flush with cash that it can use to support AI buildouts by customers that are growing quickly but still losing money. He said the Ohio data-center backstop did not amount to circular financing because OpenAI would pay for the lease and that Nvidia was helping finance and secure data centers, power supplies and facilities that would house its chips for decades. GROWING COMPETITION, RUBIN RAMP IN FOCUS A successful ramp-up of its Rubin chips is crucial as Nvidia faces growing competition from Big Tech's custom chips and central processors from Intel and AMD in inference, the process by which AI automates tasks and responds to queries. Morgan Stanley analysts estimate these chips could contribute nearly $9 billion in sales in the third quarter ending October. "We expect the company to point to Rubin as unlocking a large improvement in AI factory economics over what is already the leadership platform in Blackwell," they said in a research note, but added that it would take some time to judge whether Nvidia could win market share from AMD and the custom AI chips being developed by major technology companies. Analysts expect Nvidia to forecast an 82.8 per cent rise in third-quarter sales to $104.20 billion. Adjusted gross margin for the second and third quarters is expected to remain around 75 per cent.