NVIDIA's stock slides despite 122% jump in revenue, investors disappointed by earnings

NVIDIA’s stock took a hit recently, dropping 7 per cent in after-hours trading despite an impressive 122 per cent jump in revenue. The decline followed the company’s latest quarterly forecast, which fell short of the lofty expectations set by investors. NVIDIA, a leader in generative AI technology, has been under intense scrutiny, and its stock performance is closely watched by market participants.

Although NVIDIA announced a remarkable revenue increase and a $50 billion share buyback, investor reactions were mixed. Analysts pointed out that while the company continues to grow robustly, the margin by which it exceeded expectations was narrower than in previous quarters. This narrower margin of outperformance left investors disappointed, particularly given NVIDIA’s recent track record of significantly surpassing Wall Street estimates.

The company has consistently outperformed expectations, driven by the soaring demand for its graphics processors, which are essential for AI technologies like ChatGPT. However, the latest forecasts for both revenue and gross margin were only slightly above analysts’ predictions, diverging from NVIDIA’s usual pattern of substantial outperformance.

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Adding to the uncertainty, NVIDIA’s CEO Jensen Huang confirmed that the production of the company’s next-generation Blackwell chips has been delayed until the fourth quarter. Despite these delays, the demand for NVIDIA’s current-generation Hopper chips remains strong, and the company expects significant revenue from Blackwell chips later this year. However, the cautious forecast had a ripple effect across the semiconductor industry, leading to a decline in shares of other chipmakers like AMD, Broadcom, and Asian firms such as SK Hynix and Samsung.

NVIDIA’s outlook has also sparked concerns about the long-term returns on investments in generative AI, prompting some tech giants to potentially reconsider their spending on data centres. While NVIDIA’s stock has surged by over 150 per cent this year, adding a staggering $1.82 trillion to its market value, the extended losses in after-hours trading could result in a $175 billion drop in market value.

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Moreover, NVIDIA is facing increased regulatory scrutiny, with investigations from the U.S., South Korea, and several European countries focusing on its sales practices and AI model partnerships. These regulatory challenges add another layer of complexity to the company’s current situation.

For the third quarter, NVIDIA forecasted revenue of $32.5 billion, slightly above the analysts’ average estimate of $31.77 billion. Although its gross margin guidance was marginally below expectations, it remains higher than that of competitors, thanks to the premium prices of NVIDIA’s advanced chips. NVIDIA’s second-quarter revenue stood at $30.04 billion, exceeding estimates and reflecting significant growth in its data centre segment.