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It happens from time to time. A company turns in remarkable results. There is something slightly wrong with expectations, which is usually the public corporation’s forward guidance, and then its stock is punished brutally. This happened to Nvidia Corp. ( NASDAQ: NVDA ) after earnings. It should not have. Nvidia remains at the cutting edge of the artificial intelligence (AI) revolution and will stay there for the foreseeable future. It remains the world’s most innovative company and one the market should continue to prize.
After hours, Nvidia’s stock dropped 5%, after it was down 2% during the day. The decline puts Nvidia up 5% for the past month, about the same as the S&P 500.
Nvidia posted revenue of $30 billion, which was 122% higher than a year ago. Net income rose 168% to $16.7 billion. Data center revenue was up 154% to $26.3 billion. It is nearly impossible to find a large company with net margins that are even close, today or historically. It could have happened when Microsoft Corp. ( NASDAQ: MSFT ) had the best quarter ever. The two companies have almost identical market caps, and Microsoft’s promise is more modest. Nvidia could easily have Microsoft’s level of revenue next year and still be growing faster.
Barron's mentioned one reason Nvidia should not sell off . Experts expect it will keep its share of the AI chip market. On the other hand, D.A. Davidson managing director Gil Luria said revenue could drop at some point. Luria is likely to be out of a job soon.
There are two basic arguments about why Nvidia will eventually face growth problems. The first is that Advanced Micro Devices Inc. ( NASDAQ: AMD ) will drag it down from behind. AMD has been working on products almost identical to Nvidia’s. AMD’s shares are down 1% this year, while Nvidia’s are 135% higher, even with the recent sell-off.
The other theory about Nvidia's revenue is that the AI industry has gotten out over its skis. Companies like Microsoft have spent too much money on AI too early, and they may not get returns for another year or two. The problem is that Microsoft and other heavily AI-dependent companies must be out over their skis to be a significant part of the AI revolution. If they hold back, they may miss the most important technological advancement for over half a century.
Nvidia’s future is astonishing. Its earnings numbers do nothing to undermine that. Its stock, if anything, should rise.
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