The Nvidia (NASDAQ: NVDA) share price fell as much as 8% in after-hours trading yesterday (28 August). This was after the AI-enabling juggernaut reported its hotly anticipated earnings for the second quarter.
What was so bad about the numbers to cause this reaction? Let’s take a look.
A double beat
Ahead of the results, there were some mind-boggling figures floating about. For example, Nvidia had driven more than a quarter of the S&P 500‘s year-to-date return. It had gained about $2.6trn in market value in 21 months (!) following the release of ChatGPT. The shares were up nearly 3,000% in five years.
As for the report, the chipmaker was expected to post its fourth straight quarter of triple-digit revenue growth. And it did, with record quarterly revenue of $30bn, up 15% from Q1 and 122% from a year ago.
Once again, this breezed past analysts’ expectations for $28.7bn in revenue. It beat on the bottom line too, posting adjusted earnings per share of 68 cents against an expected 64 cents. That was up 152% year on year.
Nearly all of this was driven by the data centre segment, which is where the AI action is taking place. But revenue in its gaming business — remember that? — increased 16% to $2.9bn.
CEO Jensen Huang commented: “Nvidia achieved record revenues as global data centres are in full throttle to modernise the entire computing stack with accelerated computing and generative AI…Across the entire stack and ecosystem, we are helping frontier model makers to consumer internet services, and now enterprises. Generative AI will revolutionise every industry.”
Why’s the stock down then?
Looking ahead to the third quarter, Nvidia anticipates revenue of $32.5bn, give or take 2%. However, that was ‘only’ at the midpoint of what analysts were expecting.
Meanwhile, for the full year, the company sees its gross profit margin in the “mid-70% range“. That was a bit below where Wall Street previously saw it landing.
From here, Nvidia’s year-on-year comparisons are likely to normalise and be far less eye-popping. Slowing growth was inevitable.
Stepping back, it seems the market is getting far tougher to please. It’s less dazzled by the AI-fuelled growth and has started nit-picking.
Still the AI king
Yet the AI revolution continues, driven onwards by massive spending on data centre infrastructure from deep-pocketed tech companies. Their commitment to create ever more advanced large language models requires more powerful AI chips. Nvidia still rules supreme here.
In the fourth quarter, it expects to start shipping a few of its next-generation Blackwell chips. These are a new class of AI superchip that will both increase performance and lower power consumption.
The anticipation for these is “incredible“, according to management.
Will I invest?
Nvidia’s unprecedented growth means it’s set itself an incredibly high bar. So it’s possible the share price could now be set for a period of drift over the coming months.
In a filing released along with its results, the firm revealed that four unnamed customers — thought to be Microsoft, Meta Platforms, Amazon and Alphabet — made up 46% of total revenue during the quarter.
That level of customer concentration could become a risk if AI capital expenditure starts to cool. For now, I’m going to watch the stock to see if there’s a bigger pullback than 8%.
