Nvidia’s quarterly forecast on Wednesday failed to meet lofty expectations of investors who have driven a dizzying rally in its stock as they bet billions on the future of generative artificial intelligence.
Shares of the chip maker fell 6% in after-hours trading, weighing on shares of other semiconductor shares. The report has been seen as a day of reckoning for the tech sector and the results were treated as mixed, despite heady growth and profit.
“Here’s the issue,” said Ryan Detrick, chief market strategist at the Carson Group. “The size of the beat this time was much smaller than we’ve been seeing.” He added: “Even future guidance was raised, but again not by the tune from previous quarters. This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season.”
The revenue and gross margin forecast for the current quarter were not far from analysts’ expectations and failed to live up to a recent history of trouncing Wall Street’s targets, overshadowing a beat on second-quarter revenue and adjusted earnings as well as the unveiling of a US$50-billion share buyback.
In the last three consecutive quarters, Nvidia recorded revenue growth of more than 200%, and the company’s capacity to surpass estimates is at increasingly greater risk as each success prompts Wall Street to raise its targets even higher.
CEO Jensen Huang played up insatiable demand for the company’s powerful graphics processors that have become the workhorses for generative AI technology such as OpenAI’s ChatGPT. “You have more on more on more,” he told analysts on a conference call, describing demand.
Blackwell
Huang confirmed media reports that a ramp-up in production of Nvidia’s next-generation Blackwell chips was delayed until the fourth quarter, but downplayed the impact, saying customers were snapping up current-generation Hopper chips.
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.
If Wednesday’s after-hours stock losses hold, Nvidia is set to lose $175-billion in market value.
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The Nvidia forecast could stoke fresh concerns about slow payoffs from generative AI investments, which some investors fear could lead tech giants to rethink the billions of dollars they are spending on data centres. These concerns have sent ripples through the AI rally in recent weeks.
Nvidia’s biggest customers — Microsoft, Alphabet, Amazon and Meta Platforms — are expected to incur more than $200-billion in combined capital expenditure in 2024, most of which is meant for building AI infrastructure. — Arsheeya Bajwa, with Noel Randewich, (c) 2024 Reuters
