By Arsheeya Bajwa
(Reuters) – Nvidia’s quarterly forecast on Wednesday failed to meet the high expectations of investors, who had caused a dizzying rise in the share price by betting billions on the future of generative artificial intelligence.
The chipmaker’s shares fell 6% in after-hours trading, weighing on shares of other chipmakers. The report was seen as a day of reckoning for the technology sector and the results were viewed as mixed despite rapid growth and profit.
“Here’s the problem,” said Ryan Detrick, chief market strategist at the Carson Group. “Expectations were beaten much less this time than they have been in the past.” He added: “Even forward guidance was raised, but again not to the same extent as in previous quarters. This is a great company, with revenue still growing 122%, but it seems like the bar was just set a little too high this earnings season.”
Revenue and gross profit guidance for the current quarter was not far below analyst expectations and has fallen short of Wall Street’s targets in the recent past. This overshadowed the beaten revenue and adjusted earnings figures in the second quarter and the announcement of a $50 billion share buyback.
Nvidia has reported revenue growth of over 200 percent for the last three consecutive quarters, and the company’s ability to beat estimates is increasingly under threat as each success prompts Wall Street to set its targets even higher.
CEO Jensen Huang alluded to the insatiable demand for the company’s powerful graphics processors, which have become the workhorses for generative AI technology such as OpenAI’s ChatGPT. “They always have more,” he told analysts on a conference call, describing the demand.
Huang confirmed media reports that the production ramp-up of Nvidia’s next-generation Blackwell chips had been delayed until the fourth quarter, but he downplayed the impact, saying customers would snap up the current generation of Hopper chips.
The company said it is shipping Blackwell samples to its partners and customers after optimizing the design and expects to generate billions of dollars in sales from these chips in the fourth quarter.
Shares of chipmakers such as Advanced Micro Devices and Broadcom both fell nearly 4 percent. Asian chipmaker SK Hynix lost 4.5 percent and Samsung lost 2.8 percent in Asian trading Thursday morning.
Nervousness among investors
Much is riding on that forecast from Nvidia, whose shares have risen more than 150% this year, giving it a market value of $1.82 trillion and pushing the S&P 500 to new highs. If Wednesday’s after-market losses continue, Nvidia is expected to lose $175 billion in market value.
The forecast could fuel new concerns about slow returns from generative AI investments, causing some investors to rethink the billions they spend on data centers. Those worries have rippled through the AI rally in recent weeks.
Nvidia’s largest customers – Microsoft, Alphabet, Amazon and Meta Platforms – are expected to invest over $200 billion in 2024, the majority of which will go towards building AI infrastructure.
Shares of these companies lost less than 1 percent in after-hours trading on Wednesday.
“This reflects growing investor nervousness about the long-term viability of the generative AI market, with the entire market seemingly dependent on Nvidia’s performance,” said eMarketer analyst Jacob Bourne.
Nvidia is also facing regulatory scrutiny over its practices.
The company said in its quarterly report that it had received requests for information from regulators in the US and South Korea regarding “GPU sales, our efforts to distribute supply, base models, and our investments, partnerships and other agreements with companies developing base models.” Previously, the company had only received requests from the EU, UK and China.
Reuters reported last month that France’s antitrust authority would sue Nvidia for alleged anti-competitive practices. A media report previously said U.S. regulators were investigating whether Nvidia was trying to bundle its networking equipment with its sought-after AI chips.
Nvidia expects third-quarter adjusted gross margin of 75%, plus or minus 50 basis points. Analysts on average are forecasting gross margin of 75.5%, according to LSEG data. In the second quarter, gross margin was reported at 75.7%, compared to an average estimate of 75.8%.
Its gross margin is still higher than that of its competitors, partly due to the high prices of its fast chips. AMD reported an adjusted margin of 53% in the second fiscal quarter.
According to LSEG data, Nvidia forecast third-quarter revenue of $32.5 billion, up 2 percent. Analysts’ average estimate was $31.77 billion.
Second-quarter revenue was $30.04 billion, beating estimates of $28.70 billion. Excluding special items, Nvidia earned 68 cents per share in the second quarter, beating estimates of 64 cents.
Revenue at Nvidia’s data center segment rose 154% to $26.3 billion in the second quarter ended July 28, beating estimates of $25.15 billion. Compared to the first quarter, revenue rose 16%.
The company also generates revenue by selling chips to gaming and automotive companies.
(Reporting by Arsheeya Bajwa in Bengaluru; additional reporting by Noel Randewich in Oakland, California; Writing by Sayantani Ghosh; Editing by Arun Koyyur, Peter Henderson and Matthew Lewis)
