Shares in Nvidia took a tumble after investors got jittery over signs of slowing growth and production hiccups, even though the company reported a whopping 122% spike in second-quarter revenues compared to the same time last year.
The tech giant’s quarterly revenues surged to $30 billion, outpacing analysts’ expectations of $28.7 billion. However, the market was spooked by concerns surrounding its next-gen AI chips, codenamed Blackwell.
Pre-market trading saw Nvidia’s shares dive by as much as 7%, eventually trimming the loss to 3%. The company, currently the world’s third most valuable, boasts a market worth of $3.1 trillion.
Delays in Blackwell chip deliveries were a major red flag. Initially slated for January, the new timeline is now uncertain, which CEO Jensen Huang had promised would rake in significant revenue. Simon French, the chief economist at Panmure Liberum, told the BBC, “There were just some signs around the edges in numbers that that rate of growth was trying to slow.”
The existing AI chip, known as Hopper, continues to sell well, but Blackwell’s production delays dampened investors’ spirits. Nvidia didn’t dive into specifics about the delays but mentioned that manufacturing issues were being sorted out by TSMC, their Taiwanese partner. Early samples are already shipping to select customers.
This drop sent ripples through the US stock market, especially affecting the S&P 500 index where Nvidia makes up about 6% of its total value. The stock had been a significant driver of the index’s performance this year, having surged over 160% in the past year.
Matt Britzman from Hargreaves Lansdown pointed out the challenge for Nvidia now lies in living up to the hype. He noted, “It’s less about just beating estimates now, markets expect them to be shattered and it’s the scale of the beat that looks to have disappointed a touch.”
While the excitement around AI’s potential to revolutionize industries is high, practical applications are still under scrutiny. French highlighted that practical use cases of AI remain to be proven, adding to the overall cautious sentiment.
However, some experts advise not to over-interpret the market’s reaction to these quarterly results. As Britzman put it, other tech giants like Microsoft and Tesla operate on a “multi-year, even multi-decade, time frame,” suggesting a similar approach would be wise for Nvidia investors.
In the end, Britzman reminded that the critical question isn’t about immediate returns on AI investments but about long-term potential. Many big customers are less concerned with immediate ROI and more with the future promise of AI, a strategy that continues to play into Nvidia’s strengths.
Despite the current hiccups, Nvidia’s long-term AI prospects remain promising. Investors may need to shift focus from quarterly figures to broader, multi-year horizons to truly grasp the potential at play.
Source: Theguardian