Nvidia Corp., the tech giant that has seen its market value soar by nearly $2 trillion in the past year, faced a critical moment with its latest earnings report. Investors were hungry for perfection, but even a broad beat couldn’t prevent a subsequent selloff. The spotlight was on Nvidia’s revenue forecast—a crucial factor in determining whether the stock could maintain its stratospheric rise.
The Narrow Beat and Blackwell Chip Woes:
- Nvidia’s revenue forecast exceeded the average analyst estimate, but it fell short of the lofty expectations set by the company’s previous earnings reports. The beat was narrower than what investors had grown accustomed to.
- Adding to the unease, Nvidia acknowledged production challenges with its new Blackwell chip. This revelation sent shockwaves through the market, leading to postmarket declines in Nvidia shares.
Market Impact:
- The fear that Nvidia’s struggles might ripple through the broader market and affect other tech companies hasn’t fully materialized yet. The S&P 500 Index remained resilient, and shares of Broadcom Inc., Advanced Micro Devices Inc., and Micron Technology Inc. rebounded after an initial slip.
- Ivana Delevska, founder and chief investment officer of Spear Invest, noted that the smaller beat was unsurprising given Nvidia’s recent track record. However, it signaled that the AI giant’s valuation might have peaked—for now.
- Chief Executive Officer Jensen Huang assured investors that chip supplies would improve once manufacturing ramped up, but concerns persisted.
Valuation and Forward Outlook:
- Nvidia’s stock, which had weathered macroeconomic worries and AI spending concerns earlier in the month, closed at 37 times forward earnings. This was down from a recent high of 44 times in June.
- The company’s third-quarter revenue forecast of approximately $32.5 billion exceeded expectations by $600 million. Still, it was the narrowest beat since February 2023, when Nvidia’s market value was a mere $500 billion. As of now, the company’s market cap stands at around $3.1 trillion.
- Michael Matousek, head trader at U.S. Global Investors Inc., summed it up: “AI is still there, but I think people got a little too excited, a little too over-hyped in terms of what we can expect in the near term.”
Nvidia’s journey remains captivating, but perhaps the era of astronomical expectations needs a reality check. As investors await further updates on the Blackwell chip, the tech landscape continues to evolve.
