Nvidia, the $3 trillion chipmaker, fell short of investors’ high expectations for its fiscal year 2024 second-quarter earnings report. As a result, the company’s stock dropped by 6 percent during the August 29 trading session, dipping below $118. Although the tech-heavy Nasdaq Composite Index also experienced a slight decline of 0.23 percent, both Nvidia and Nasdaq moderately recovered in Friday’s trading session.
Market watchers believe that these developments indicate potential cracks in Nvidia’s performance. The company has been at the forefront of the artificial intelligence boom that has swept Wall Street over the past two years.
Investors closely analyzed Nvidia’s earnings report after it was released following Wednesday’s closing bell. They focused on factors such as guidance beat, concerns about margin falling short of expectations in the next quarter, and updates on a next-generation AI chip.
In terms of revenue growth, Nvidia saw an impressive increase of 122 percent year over year in the July quarter, surpassing $30 billion. This marked its fourth consecutive quarter with triple-digit revenue growth. The company also reported solid revenue gains from various sources including its data center division and gaming business.
While third-quarter revenue guidance exceeded market estimates at $32.5 billion compared to an estimated $31.8 billion, it was still relatively small compared to previous quarters.
Net income doubled to over $16.6 billion or 67 cents per share for Nvidia during this period.
However, investors expressed concern when Nvidia projected gross margins to be in the mid-70 percent range for the full year instead of meeting consensus estimates suggesting a margin of 76.4 percent.
Another issue raised was a delay in developing Nvidia’s next-generation Blackwell AI chip due to a design flaw which might impact demand in Q3.
Despite beating expectations across various metrics and demonstrating strong overall performance so far this year with shares up by 144 percent YTD (year-to-date), some analysts suggest that Wall Street may have set unrealistic expectations for Nvidia’s future prospects.
According to John Belton from Gabelli Funds: “This was a solid ‘thesis validation’ quarter…We are not going to be bothered by…beating expectations is somehow boring.”
Meanwhile Dan Ives believes that “Nvidia and [CEO Jensen] Huang are currently like LeBron in High School basketball given this AI Revolution just starting.”
Although there have been comparisons drawn between today’s market conditions and those leading up to the dot-com bubble burst in late-1990s when internet services and technology companies experienced significant increases followed by crashes due to lack of profitability; experts argue that there are notable differences between then and now.
