Nvidia reported its second quarter earnings mostly ahead of estimates, but the chipmaker’s guidance for the next quarter failed to impress Wall Street investors. The company announced Q2 results after the bell.
Nvidia share price ended 2.1% lower at $125.61 apiece at the closing bell. However, Nvidia stock price declined 6.89% in the after-hours trading. Its total market value as of the close Wednesday was at $3.156 trillion as against around $1.15 trillion one year ago.
Nvidia stock price has jumped 154% so far in 2024 and is up some 3,000% since 2019.
Nvidia’s Q2 revenue more than doubled from the same period a year earlier. Its revenue in the quarter ended July 31 rose 122% from a year ago to $30.04 billion, beating estimates of $28.70 billion. Its revenue from data center business grew 154% YoY to $26.3 billion and accounted for 88% of its overall sales.
Nvidia forecast revenue of $32.5 billion, plus or minus 2%, for the third quarter, compared with analysts' average estimate of $31.77 billion.
The company’s earnings per share, excluding certain items, was at $0.68, marginally higher than the estimates of $0.64.
The chipmaker reported a gross margin of 75.7% in Q2 as against 78.4% in the previous quarter and versus an average estimate of 75.8%. It expects an adjusted gross margin of 75%, plus or minus 50 basis points, in Q3.
The company said it was shipping Blackwell samples to its partners and customers after tweaking its design, and that it expected several billion dollars in revenue from these chips in the fourth quarter, Reuters reported.
Nvidia also announced a $50 billion share buyback.
Nvidia's AI Dominance: Is the Boom Cooling Off?
Shares in Nvidia have fallen despite the artificial intelligence (AI) chip giant comfortably beating expectations after more than doubling its sales.
Nvidia announced record revenues of $30bn (£24.7bn) over a three-month period.
The company has been one of the biggest beneficiaries of the AI boom, with its stock market value soaring to more than $3 trillion.
But while analysts have grown used to Nvidia producing “spectacular” sales growth, the latest results indicate “that rate of growth was starting to slow,” said Simon French, head of research at Panmure Liberum.
Analysts had forecast sales growth of $28.7bn for the three months to 28 July.
Nvidia surpassed this with revenues increasing by 122% compared to the same period last year.
But Nvidia's share price fell by 6% in after-hours trading in New York.
“It’s less about just beating estimates now,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Markets expect them to be shattered and it’s the scale of the beat today that looks to have disappointed a touch.”
Announcing the latest results, Nvidia chief executive Jensen Huang said: “Generative AI will revolutionise every industry.”
But Mr French told the BBC: “If you’re going to raise expectations that high then you’ve got to keep growing at spectacular rates.”
He added that while its current AI chip - called Hopper - is selling well, the next generation Blackwell chip “has faced some production delays and that perhaps is one of the reasons why Wall Street after hours sold off the stock”.
Nvidia: The Taylor Swift of Tech
A “watch party” had been planned in Manhattan, according to the Wall Street Journal, while Mr Huang, famed for his signature leather jacket, has been dubbed the “Taylor Swift of tech”.
Alvin Nguyen, senior analyst at Forrester, told the BBC both Nvidia and Mr Huang have become the “face of AI”.
This has helped the company so far, but it could also hurt its valuation if AI fails to deliver after firms have invested billions of dollars in the technology, Mr Nguyen said.
“A thousand use cases for AI is not enough. You need a million.”
Mr Nguyen also said Nvidia's first-mover advantage means it has market-leading products, which its customers have spent decades using and has a “software ecosystem”.
He said that rivals, such as Intel, could “chip away” at Nvidia's market share if they developed a better product, though he said this would take time.
The AI Chipmaker’s Future: A Race Against Time
The company's update, after US markets had closed for the day, was seen by analysts as crucial to the direction for wider stocks ahead given the artificial intelligence-driven rally of 2024.
In the second quarter, the company created $30bn in revenue, above the forecasted $28.7bn. While Nvidia’s revenue still outperformed estimates, it did so by the nearest margin in six quarterly reports. Compared to a year ago, revenue for the quarter is up 122%, and compared to the first quarter of this year, up 15%.
The release of Nvidia’s quarterly report comes near a month after a market tumble in early August, where tech companies particularly took a hit. Nvidia’s share price dropped below $100 in this period, but throughout the month of August, recovered close to its June and July peaks.
Garry White, chief investment commentator at Charles Stanley, said: “Nvidia’s earnings report was one of the most widely anticipated set of quarterly figures in this earnings season – and for good reason too. The artificial intelligence (AI) chipmaker had led market gains this year in an investment frenzy – and these results have provided some reassurance that businesses are continuing to invest in the new technology.
“Expectations of an earnings beat in the second quarter and raised guidance for the current quarter were duly delivered. As a result, these earnings should support the recent recovery in the technology sector, particularly AI-related companies from the early August sell off – but are likely not spectacular enough to provide a major market boost. Nevertheless, they are likely to provide some relief to investors worried about the future market direction.”
Yet early trading following Nvidia’s results, which saw the share price drop 6.89%, shows some investors are not yet satisfied.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said the dip could be due to the precedent Nvidia has set around its results.
“It’s less about just beating estimates now, markets expect them to be shattered and it’s the scale of the beat today that looks to have disappointed a touch,” Britzman said.
He said the two areas investors should have eyes on are the guidance for the next quarter and information on the delay of the Blackwell platform.
“Guidance was higher than expected, and Blackwell commentary should alleviate some of the concerns that delays will have a meaningful impact on next quarter’s revenue.
“It’s not just the chips that make Nvidia’s product so appealing, the CUDA software platform that enables users to optimise the hardware is just as important. Competition will come from the hyper-scalers themselves, who are working hard to build in-house chips, to more specialised companies looking to solve more specific problems. But it’s likely these remain edge cases for a good while yet, enabling Nvidia to continue to enjoy its dominant position over the next few years.”
Britzman added: “Nvidia is the flagbearer for the AI revolution, but investors tend to overstate the importance of one set of quarterly results in the grand scheme of AI. Leaders like Musk, Zuckerberg and Nadella are thinking on a multi-year, even multi-decade, time frame and investors would be wise to adopt a similar mentality.
“The question of return on investment that many AI bears fall back on simply isn’t the main consideration for Nvidia’s biggest customers at this stage. Like many before, this cycle won’t be a straight line, but while the ‘build it and they will come’ approach continues, it plays right into Nvidia’s hands.”
Nvidia’s Stock Plunge: A Sign of Things to Come?
US tech stocks are falling despite Nvidia, the chipmaker driving the artificial intelligence (AI) led stock market boom, reporting stronger than expected earnings.
Nvidia's crucial forecast for sales in the current quarter, $32.5bn, also beat estimates but only slightly.
That may have been the catalyst for its shares suffering a rare decline in value following an earnings update.
A fall of up to 6.8% was recorded in after-hours dealing, according to the Reuters news agency.
That built on losses of more than 2% during Wednesday's main trading hours.
The fortunes of Nvidia, which holds 80% of the AI chip market, are being closely watched for signals that the big investment opportunity that is AI remains on a solid upward curve.
Confidence wobbled at the start of August when US data raised fears of a recession, sparking a short-lived but sharp global stock sell-off that sent investors towards safe-haven government bonds.
For Nvidia a recession, while seen as very unlikely, would be a risk to demand for AI and, therefore, its products.
Its prospects and success to date has earned it a lofty market value of $3.2trn, according to LSEG data.
The shares are 3,000% up since 2019.
But the meteoric rise, that has left Nvidia just behind Apple in terms of market value, has raised fears of a repeat of the dot-com bubble bursting two decades ago.
Tech stocks have outperformed the market and are seen as vulnerable to shocks on a value versus earnings basis.
Worries over a design-led delay in the launch of Nvidia's upcoming Blackwell chips have contributed to recent price wobbles, though the shares have largely held up as its existing Hopper chips were seen as filling any short-term void.
Nvidia said on Wednesday it had already shipped Blackwell pilots to customers and partners. It expected sales to ramp up from the end of the year.
Traders in the US equity options market had expected the earnings report to spark a more than $300bn swing in the shares in advance of the release being made public.
But analysts said that the share price declines seen instead may reflect jitters on the value question.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said of the update: “Nvidia continues to defy gravity with its seventh straight quarter beating expectations on both the top and bottom line, showing a masterful delivery of performance and guidance from Jensen Huang and the Nvidia team.
“But early trading suggests that's not enough to keep the market happy. It's less about just beating estimates now, markets expect them to be shattered and it's the scale of the beat today that looks to have disappointed a touch.”
