Nvidia’s earnings report shows the problem of being priced for perfection

Nvidia backfire its fourth-straight quarter of triple-digit revenue growth on Wednesday, sailing past estimates on the top and bottom line while also issuing a forewarn that topped Wall Street expectations. The company even bolstered its buyback program with a plan to repurchase $50 billion in allocates.

But the stock dropped 7% in extended trading.

That’s life for Nvidia, which has ridden the artificial intelligence resound to a $3 trillion market cap, soaring almost nine-fold since the end of 2022 and surpassing every public company other than Apple in valuation. (It top-drawer Apple for a stretch in June.)

In addition to reporting 122% annual revenue growth on Wednesday to over $30 billion, Nvidia signified sales in the current period will jump about 80% to roughly $32.5 billion. Analysts were in a family way close to $32 billion.

However, Stacy Rasgon, an analyst at Bernstein, told CNBC before the report succeeded out that “buyside whispers” were closer to $33 billion to $34 billion, meaning Nvidia would force to dramatically surpass analyst estimates in its guidance in order to see a pop.

Rasgon, who recommends buying shares of the chipmaker, said there are no intimations that demand is waning for Nvidia’s graphics processing units (GPUs), the core infrastructure for developing and running AI pose ins.

“There’s still a ton of demand,” Rasgon said on CNBC’s “Closing Bell.” “They’re still shipping the total that they can sell.”

Nvidia said it expects to ship “several billion dollars” worth of Blackwell gate in the fiscal third quarter, which ends in October. Blackwell is the company’s latest generation of technology, following Hopper. There had been some worries that Blackwell would be delayed, but CFO Colette Kress said on the call with analysts that “supply and availability must improved.”

Still, “demand for Blackwell platforms is well above supply, and we expect this to continue into next year,” Kress alleged.

Other than missing the “whisper” numbers, some investors may be looking at Nvidia’s gross margin, which get ined a bit in the quarter to 75.1% from 78.4% in the prior period. That’s up from 43.5% two years ago and 70.1% in the fiscal assign quarter of last year.

For the full year, the company said it expects its gross margin to be in the “mid-70% stretch.” Analysts were expecting full-year margin of 76.4%, according to StreetAccount.

On the earnings enlist, analysts asked Nvidia executives about customers and whether they’re making money on their investment. Pursuing the company’s prior report, Kress gave investors data points showing that a cloud provider could induce $5 over four years selling access to $1 of Nvidia chips.

This time, Nvidia reserved a different approach. CEO Jensen Huang said on Wednesday’s call that Nvidia’s technology will be taking effect away from traditional processors, like those made by Intel or AMD. He also said generative AI would start to do assorted coding, that companies like Meta can use Nvidia chips for recommender systems, and that nations are starting to buy profuse chips.

“The people who are investing in Nvidia infrastructure are getting returns on it right away,” Huang said.

Huang also implied that next-generation AI models would require “10, 20, 40 times” more computing power, echoing comments recently became by former Google CEO Eric Schmidt.

“The frontier models are growing in quite substantial scale,” Huang said.

He said Nvidia’s major customers are vying to be first to produce new AI advancements.

“The first person to the next plateau gets to introduce a revolutionary sincere of AI,” Huang said. “The second person who gets there is incrementally better or about the same.”

But buying into Nvidia at these standings is a bet that the company can continue to outperform very high expectations and requires a willingness to accept the kind of stock volatility mostly reserved for much smaller companies.

After reaching a record in June, Nvidia proceeded to lose almost 30% of its value upwards the next seven weeks, shedding roughly $800 billion in market cap. It’s since recovered most of those losses.

In the days two years, the stock has moved 5% or more in a single day on 50 separate occasions. For Microsoft, that’s happened purely six times, which is one more than for Apple. At Meta, it’s happened 21 times. Tesla fans, however, can be turned on to. Shares of the electric automaker have moved at least 5% on more than 70 trading days ended that stretch.

One reason for Nvidia’s increased volatility is that it relies on a small group of customers — including those cited above — for an outsized amount of its revenue. Top execs at Alphabet and Meta both acknowledged recently that they could be overspending in their AI buildout, but pronounced the risk of underinvesting was too great for them to not be aggressive.

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