The stock market experienced a wobble late last week after Nvidia (NASDAQ: NVDA) dropped its latest earnings. Despite releasing numbers most companies could only dream of, the share price still slipped 3% on the day (28 August).
Revenues of $46.7bn (£34.6bn) in just three months up to July is an eye-watering figure. That’s roughly half a billion dollars a day — or the equivalent of Ford Motor Company’s entire market-cap.
And the chip giant doesn’t look set to stop there. Guidance suggests revenues could hit $54bn (£40bn) in the next quarter, with expectations boosted further by a new deal with the Trump administration. Under the agreement, Nvidia will hand over 15% of profits from China sales in exchange for long-awaited export licences for its H20 chips, which have so far been blocked by US national security restrictions.
This is, after all, a $4trn company that represents about 8% of the total value of the S&P 500 index. It’s become more than a tech firm – it’s a barometer for artificial intelligence (AI) demand across the world.
And yet, despite these blockbuster figures, the share price still dropped around 3%. Why? Datacentre revenue, which makes up the bulk of Nvidia’s earnings, came in below analyst estimates.
What this means for the market
Because Nvidia’s seen as a gauge for AI demand, any wobble in its results tends to ripple across markets. Its chips are not only powering AI platforms globally but also driving the most powerful supercomputer in the UK — the newly unveiled Isambard-AI.
So what should we make of softer data centre numbers? One interpretation is weakening demand. That would be concerning, as it would suggest the AI boom that’s driven much of the US stock market rally could be starting to plateau.
Another possibility is increased competition. If rival chipmakers are starting to bite into its dominance, that could be healthy in the long run. After all, its lofty valuation has looked fragile, and a bit of balance in the market might stabilise things globally.
Still, the risk remains that if datacentre demand really has peaked, both Nvidia and the S&P 500 may struggle to keep its current rally alive. We’ve already seen defence stocks ease back after last week’s peace talks — despite no tangible resolution to ongoing conflicts. The broader picture shows a market that looks fully priced and increasingly sensitive to even small earnings misses.
My conclusion
For all the market jitters, it’s worth remembering that Nvidia’s earnings grew 65% year on year and are forecast to keep climbing. Even at today’s high share price, the company trades on a forward price-to-earnings (P/E) ratio of 39. That’s not cheap, but it’s lower than rivals AMD, Broadcom and Intel.
So while the headlines screamed about a post-earnings slump, I think Nvidia’s still worth considering. It remains a crucial component of both AI development and the wider stock market. The real question is whether the latest dip is simply a pause for breath — or the start of something bigger for global equities.
