Nvidia shares were down in the US premarket after the company reported eagerly anticipated quarterly earnings overnight.
In many respects, Nvidia was set up to fail going into results. Simply beating analyst earnings expectations is not enough for Nvidia. Their importance to the AI trade means markets want to see the chip maker smash estimates by many billions, even if they doubled revenue compared to a year ago.
“The most important earnings release in the entire history of the world – at least if you believe the hype beforehand – saw NVDA deliver both top- and bottom-line beats, coupled with better-than-expected third quarter guidance, as well as promising news on the delivery of the new ‘Blackwell’ chip,” said Michael Brown Senior Research Strategist at Pepperstone.
“While those at Nvidia earnings watch parties (bubble sign, perhaps!?) would’ve been pleased with the earnings slate, market participants appeared rather disappointed, with NVDA ending the after-hours session 7% softer, having failed to meet what, in hindsight, was an impossibly high bar that investors had set.”
The sharp ascent in the share price over the past two years means the investors are ultra-sensitive to any suggestion of a slowdown in momentum.
Nvidia trades at an earnings multiple considered to be rich compared to historical averages. With such a high valuation, earnings have to run higher faster just for Nvidia shares to stand still.
That said, there weren’t any major concerns with last night’s report and today’s drop is likely a round a profit taking after a meteoric rise in the stock.
“Revenue jumped 122% year-over-year to $30.04 billion, and its data centre revenue grew 154% to $26.3 billion, both smashing through estimates. Nvidia also announced an additional $50 billion buyback program, signalling its confidence in what’s ahead after ending the quarter with a massive cash balance of $34.8 billion,” Josh Gilbert, Market Analyst at investment platform eToro summarised.
As well as recent finanical performance, Nvidia provided insight into the rollout of its new Blackwell chips, saying it will sell billions of dollars in the coming periods. In addition, investors would have been encouraged to hear the Nvidia CEO in his traditionally bullish mood on last night’s earnings call, highlighting robust demand from the world’s largest tech companies.
“The market may be disappointed not to see a bigger beat on its outlook given what is now almost unattainable expectations, but the bottom line here is that the long-term story remains intact, demand remains huge and the Juggernaut that is Nvidia rolls on,“ Gilbert said.