Nvidia’s latest quarterly forecast failed to meet the sky-high expectations set by investors, leading to a 6 per cent drop in its stock during after-hours trading. The tech giant’s performance is closely watched, given its leadership in generative AI technology.
Despite a remarkable 122 per cent revenue growth and a $50 billion share buyback announcement, investor sentiment was mixed. According to a report by Reuters, Ryan Detrick, Chief Market Strategist at the Carson Group, noted that although Nvidia is still growing robustly, the margin by which it exceeded expectations was smaller than in previous quarters. This caused disappointment among investors who had set lofty expectations.
Nvidia has consistently outperformed Wall Street estimates in recent quarters, spurred by the high demand for its graphics processors crucial for AI technologies like ChatGPT. However, the latest forecasts for revenue and gross margin were only marginally above analysts’ expectations, deviating from its trend of substantial outperformance.
CEO Jensen Huang confirmed delays in the production of Nvidia’s next-generation Blackwell chips until the fourth quarter. However, he emphasized that the demand for its current-generation Hopper chips remains strong. Nvidia anticipates significant revenue from Blackwell chips later this year.
The cautious forecast sent ripples across the semiconductor industry, causing shares of other chipmakers like AMD, Broadcom, as well as Asian firms SK Hynix and Samsung, to fall.
Nvidia’s outlook has raised questions about the long-term returns on generative AI investments, potentially leading tech giants to reconsider their spending on data centers. Although Nvidia's stock has surged over 150 per cent this year, adding $1.82 trillion to its market value, prolonged after-hours losses could result in a $175 billion market value drop.
Additionally, Nvidia faces intensified regulatory scrutiny, including inquiries from the U.S., South Korea, and several European countries concerning its sales practices and AI model partnerships. This further complicates the challenges for the company.
For the third quarter, Nvidia forecasted revenue of $32.5 billion, slightly above the analysts' average estimate of $31.77 billion. While its gross margin guidance was slightly below expectations, it remains higher than competitors due to the high prices of its advanced chips. Nvidia’s second-quarter revenue was $30.04 billion, surpassing estimates, with substantial growth in its data centre segment.