- Nvidia results beat the average consensus forecast for the seventh time in a row but shares drop 7%
- Earnings fall short of analysts’ upper range of forecasts
- Worries about a slowdown in the pace of earnings growth
- New $50 billion share buyback fails to excite
“Investors want more, more and more when it comes to Nvidia. Despite the company’s best efforts to talk up the opportunities once again around AI, it wasn’t enough to prevent a share price sell-off following its latest results,” says Dan Coatsworth, investment analyst at AJ Bell.
“Nvidia has lived up to its name and hit the ‘Magnificent’ seven quarters in a row where earnings have beaten the consensus estimate. Unfortunately, that wasn’t enough for the market. Neither was a new $50 billion buyback programme, something that would normally create a sugar rush for investors.
“It looks like investors might not have taken the average of analyst forecasts to be the benchmark for Nvidia’s performance, instead they’ve taken the highest end of the estimate range to be the hurdle to clear. The top end was $0.71 earnings per share compared to the $0.68 earnings per share which the company achieved.
“Another disappointment for investors was the pace of earnings growth. Even though Nvidia is still making more money each quarter than the previous one, the growth rate is slowing. That has triggered alarm bells in the market that the AI gravy train might be losing power.
“Nvidia insists there is still a large runway for growth. Companies want more powerful computer processing capabilities, bigger storage capacity and more functionality to train AI models. These tailwinds play to Nvidia’s strengths and put it at the centre of the tech revolution. The trouble is that the market is fully aware of Nvidia’s strong position and there is a risk that investors have got carried away, believing the company to be invincible.
“Nvidia’s results showed that even the biggest and brightest companies can experience the odd setback and that it isn’t all plain sailing. Design changes to its next generation of chips, known as Blackwell, recently caused nervousness on the market that there would be delays in getting the products to market. Nvidia batted off these concerns, insisting that Blackwell will be ‘a complete game changer for the industry’.
“The AI craze has been in motion for nearly two years and there is a sense that companies are now shifting from ‘get involved at any price’ to ‘only get involved if the financial returns make sense’. While Nvidia’s bullishness implies that it is still worked off its feet as demand is unprecedented, the potential shift in customer mindset cannot be ignored, hence why investors are starting to become more nervous around the chip stock.”
