Sometimes your best just isn’t good enough. That’s the lesson Nvidia (NVDA) learned on Wednesday after the company’s stock fell 3% despite reporting better-than-expected second-quarter earnings and a third-quarter outlook.

It’s not that the company’s growth hasn’t been impressive, either. Revenue rose 122% year over year to $30 billion from $13.5 billion. Nvidia’s all-important data center revenue peaked at $26.3 billion, up 154% year over year.

But that wasn’t the kind of explosion investors have quickly become accustomed to in recent quarters.

In addition to investor sentiment, Wall Street analysts also appear to have noticed Nvidia’s growth, after several quarters of big surprises.

Nvidia’s revenue reported on Wednesday beat Wall Street expectations by 4.1%, the narrowest margin since the fourth quarter of fiscal 2023.

Nvidia’s business has exploded over the past two years, with the company’s revenue beating Wall Street forecasts by double digits for three straight quarters, outpacing Wall Street by 22% in the second fiscal quarter of 2024.

And as Wall Street appears to have a better sense of Nvidia’s growth at this stage of the AI ​​investment cycle, questions have also been raised about the status of Nvidia’s next-generation Blackwell chip.

Ahead of the company’s earnings announcement, Information reported that the chip, the successor to Nvidia’s Hopper line, had faced delays, potentially impacting some of the company’s biggest customers, including Microsoft and Google.

In her quarterly commentary, Nvidia CFO Colette Kress explained that the company was making changes at Blackwell to improve production yields. CEO Jensen Huang, meanwhile, said that the chip is currently undergoing customer testing, a key step toward shipping the processor in volume.

Huang said the company expects to ship multibillion dollars of Blackwell revenue in the fourth quarter. But the CEO could not specify exactly how much revenue Blackwell would generate, despite questions from analysts.

Huang did point out a number of other strengths for Nvidia, however, including the fact that demand for Blackwell platforms is well ahead of supply. The CEO also said that Nvidia’s Hopper platform will continue to grow in the second half of the year, explaining that the company expects its data center business to grow “pretty significantly” next year.

Huang also said that AI inferencing is driving revenue for the company’s data center. Inferencing refers to computers running AI programs and providing users with answers to their questions.

The story continues

That should ease fears about threats to Nvidia’s long-term growth as companies shift from training AI models to using inference. Huang seems to believe Nvidia will keep plowing ahead as customers use its chips to train and run their AI models.

Nvidia is still the global leader in AI chips, and it will be some time before rivals AMD (AMD) and Intel (INTC) catch up to the hardware and software leaders. And while Nvidia may face a share price drop in the short term, Wall Street is still on board.

In an investor note released following Nvidia’s earnings results, BofA’s Vivek Arya raised his price target on the chip designer to $165 per share from $150. He wrote, “Despite the quarterly rumor, we continue to believe in (Nvidia’s) unique growth opportunity, execution, and dominant 80%+ share as generative AI implementations are still in their first 1-1.5 (years) of what is at least a 3-4 year upfront investment cycle.”

Raymond James’ Srini Pajjuri also raised the firm’s price target on Nvidia’s shares to $140 from $120. In an investor note, he wrote that “Blackwell’s delays appear better than feared and management is forecasting strong upside in FQ4.”

Pajjuri also said demand for Nvidia’s current-generation Hopper chips remains healthy and pointed to expected revenue growth in the fourth quarter despite Blackwell ramping up production at the same time.

Morgan Stanley’s Joseph Moore, who raised his price target on Nvidia to $150 from $144, pointed to Nvidia’s sky-high expectations for the company’s share price movements following its earnings report.

“Expectations are rising as the superlative becomes more commonplace, but this was still a very strong quarter given the current, fluid nature of the environment.”

Whether that will be enough to satisfy investors next quarter remains to be seen.

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

For the latest earnings reports and analysis, earnings rumors and expectations, and company earnings news, click here

Read the latest financial and business news from Yahoo Financebait.