AI giant Nvidia Corp. pays the price of lofty expectations
Nvidia Corp.'s earnings report needed to be perfect for a stock that's added nearly US$2 trillion in market value in the past year. In the end, a broad beat still sparked a sell-off.
At issue is Nvidia's revenue forecast. While easily exceeding the average analyst estimate, the beat was far narrower than investors have grown to expect over the past five earnings reports. That, and an acknowledgment that the new Blackwell chip hit production snags, was enough to send Nvidia shares tumbling in postmarket trade Wednesday, with declines resuming in premarket Thursday.
The concern is that if Nvidia — the biggest beneficiary of AI spending and a stock central to the S&P 500's gains this year — is having trouble living up to lofty expectations, that doesn't bode well for other gear makers.
“It's not entirely surprising to see it trade down on these results because it is the smallest beat that we've seen in a while,” said Ivana Delevska, founder and chief investment officer of Spear Invest.
The reaction to the report signals the AI giant's valuation may have topped out for the time being, at least until more is known about the availability of the Blackwell chip. Chief executive Jensen Huang said supplies will be plentiful when manufacturing picks up, but his comments did little to quell concerns.
After rallying back from a steep sell-off earlier this month amid macroeconomic worries and concerns about the longevity of big spending on AI, Nvidia shares closed on Wednesday priced at 37 times forward earnings. That's down from a recent high of 44 times in June, according to data compiled by Bloomberg.
Nvidia's forecast for third quarter revenue to be about US$32.5 billion exceeded the average analyst estimate by US$600 million. Still, that was the narrowest beat since February 2023, back when Nvidia's market value was around US$500 billion. It closed on Wednesday with a market value of about US$3.1 trillion.