Shares of the chipmaker fell six per cent in after-hours trading, weighing on shares of other chipmakers and might prove messy when Wall Street opens later today. The problem was not that Nvidia failed to meet everyone’s expectations with its results; it failed to do better than expected.
So, if you are an analyst who is paid big dollars for your fortune-telling skills and you make a prediction, it is only good for a company if your prediction is wrong. If you try that in the tarot reading business you will not be very successful.
Carson Group analyst Ryan Detrick said: “Nvidia is a great company that is still growing revenue at 122 per cent, but it appears the bar was just set a tad too high this earnings season."
Although it was not that the bar was set too high, it was just that the bar was set and then expected to be much higher and no one told Nvidia. It sounds like analysts spend too much time in bars.
Nvidia beat second-quarter revenue and adjusted earnings and announced a $50 billion share buyback.
However, revenue and gross margin forecast for the current quarter were not far from analysts’.
In the last three consecutive quarters, Nvidia recorded revenue growth of more than 200 per cent, 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.
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.
Shares in chipmakers Advanced Micro Devices and Broadcom both fell nearly 4 per cent on the news. Asian chipmaker SK Hynix fell 4.5 per cent, and Samsung was down 2.8 per cent in Thursday morning trading in Asia.
Nvidia, whose stock has surged more than 150 per cent this year, adding $1.82 trillion to its market value and lifting the S&P 500 to new highs. If Wednesday's after-hours share losses hold, Nvidia is set to lose $175 billion in market value.
Nvidia's biggest customers—Microsoft, Alphabet, Amazon, and Meta Platforms—are expected to incur more than $200 billion in capital expenditures in 2024, most of which will be used to build AI infrastructure.
Shares of these companies dipped less than a per cent in after-hours trading on Wednesday.
Reuters reported last month that France's antitrust regulator was set to charge Nvidia with alleged anticompetitive practices. A media report earlier said U.S. regulators were probing whether Nvidia was trying to bundle its networking equipment with its sought-after AI chips.
Nvidia expects an adjusted gross margin of 75 per cent, plus or minus 50 basis points, in the third quarter. Analysts on average forecast a gross margin of 75.5 per cent, according to LSEG data. It reported a 75.7 per cent gross margin in the second quarter versus an average estimate of 75.8 per cent.
Its gross margin still tops that of rivals, helped by the steep price tags attached to its speedy chips. AMD recorded an adjusted margin of 53 per cent in its fiscal second quarter.
Nvidia forecast revenue of $32.5 billion, plus or minus two per cent, for the third quarter, compared with analysts' average estimate of $31.77 billion, according to LSEG data.
Second-quarter revenue was $30.04 billion, beating estimates of $28.70 billion. Excluding items, Nvidia earned 68 cents per share in the second quarter, beating estimates of 64 cents.
Sales in Nvidia's data centre segment grew 154 per cent to $26.3 billion in the second quarter ended July 28, above estimates of $25.15 billion. From the first quarter, it increased 16 per cent.
It also derives revenue from selling chips to gaming and auto companies.
