Nvidia (NASDAQ: NVDA), the major player in the semiconductor industry and a key contributor to the artificial intelligence (AI) surge, encountered a rather unanticipated decline in its share price during the extended trading session from November 20 to November 21.
This drop of 3.41% at the time of reporting was surprising given that it followed a robust Q3 earnings announcement made after the market closed on Wednesday.
In its earnings report, Nvidia revealed an earnings-per-share (EPS) of $0.81, surpassing analysts’ expectations of $0.75, along with a substantial revenue figure of $35.08 billion—about $5 billion more than the previous quarter and exceeding the anticipated $33.16 billion.
While the drop might seem unexpected in light of these impressive results, it reflects a broader trend observed in the tech industry.
Just a month prior, Advanced Micro Devices (NASDAQ: AMD) experienced a similar situation, suggesting that investors are increasingly focused on achieving even higher margins and growth, which leads them to react negatively to otherwise strong performance metrics.
Understanding Nvidia’s post-earnings stock decline
The decline in NVDA shares saw the stock decrease from its last closing price of $145.89 to a pre-market value of $140.92, contrasting with its solid performance over the past two years.
Much debate has surrounded the notion of the AI boom potentially being an artificial bubble, with Nvidia often positioned as a leading indicator of the industry’s vitality.
This uncertainty is compounded by the fact that while Nvidia’s revenue growth has been substantial, it hasn’t aligned with the company’s soaring valuation.
For instance, in its announcement on January 31, 2023, Nvidia reported a revenue of around $6 billion and had a market cap of $364 billion at the close of 2022. By November 21, 2024, its revenue had surged to nearly six times that amount, yet its valuation skyrocketed tenfold, currently placing the company’s worth at approximately $3.6 trillion.
Instability perceptions are further supported when comparing Nvidia’s revenue to that of other trillion-dollar firms; Apple’s (NASDAQ: AAPL) latest report indicated revenue of $95 billion in a single quarter, while Microsoft (NASDAQ: MSFT) registered $65 billion—significantly higher than Nvidia despite a $500 billion lower market cap.
Alphabet (NASDAQ: GOOGL), valued at $2 trillion, also announced revenue of $88 billion in its most recent quarterly update.
Did the controversial Blackwell issues lead to the selloff?
The apparent loss of confidence may stem from certain operational challenges. Despite CEO Jensen Huang characterizing demand for the Blackwell architecture as “insane” and outlining ambitious future plans, the chipset has faced considerable technical difficulties.
Initially, there were reports of a resolved design flaw associated with Blackwell, coupled with speculation about whether Nvidia or Taiwan Semiconductor Manufacturing (NYSE: TSM) bore responsibility. More recently, claims emerged suggesting the product is susceptible to overheating.
Furthermore, one could argue that the immediate decline in NVDA stock was foreseeable due to its high valuation and the prevailing market unease. This trend was also evident in the shares’ 0.76% decline during the most recent trading session, despite Wall Street analysts largely agreeing that the earnings report would be favorable.
Analysts respond positively where investors do not
In contrast to the negative investor sentiment, analysts had a largely positive response to the earnings report.
For instance, Jim Cramer openly questioned the rationale driving NVDA traders, suggesting they might be trying to sell before the price dropped to $141 in order to re-enter the market on a corrected price.
Dan Ives from Wedbush, renowned as one of the most optimistic analysts in the tech sector, lauded Nvidia’s earnings as a ‘blockbuster’ announcement, calling the results ‘eye-popping’ and ‘massive.’
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