Nvidia, the AI chipmaker with an over $3 trillion market value, faced high expectations heading into its second-quarter earnings call on Wednesday. Analysts positioned the call as a "market mover" that would either justify Nvidia's high valuation or undermine it. One even said the call could be more impactful to the markets than Federal Reserve Chair Jerome Powell's Jackson Hole speech last week.
Nvidia's Wednesday earnings, disclosed after market close, beat analyst expectations with high numbers. Nvidia reported its fourth quarter in a row of triple-digit growth, with revenue growing 122% year-over-year to top $30 billion. Profits doubled to $16.6 billion, higher than the $15 billion analysts predicted.
Still, Nvidia shares fell nearly 7% after the company shared its earnings.
"Nvidia delivered as expected, but traders are shrugging," David Russell, Global Head of Market Strategy at online broker-dealer TradeStation , told Entrepreneur in an emailed statement.
The reason could be that investors are moving away from companies with mega capitalizations like Meta and Google and focusing more "on areas like financials that stand to benefit from rate cuts," he stated.
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Financial stocks, including banks and insurers, are taking the lead over megacap companies as this year's best-performing sector, Russell asserted in a July article . These stocks could benefit from lower interest rates that could be coming through Federal Reserve decisions later this year.
There are other possible reasons for the stock dip. Nvidia could have simply faced "lofty and unrealistic expectations," Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada wrote. The chipmaker has repeatedly exceeded Wall Street estimates, so it would have had to drastically go above and beyond what it has shown so far to see its stock soar, Bernstein analyst Stacy Rasgon told CNBC.
"The problem is that investors keep raising the bar on Nvidia each quarter, and the expectations have become unrealistic," Jacob Bourne, an Emarketer analyst , told Business Insider. Nvidia's numbers were "stellar," Bourne noted.
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Nvidia has also faced issues manufacturing its next big AI chip, Blackwell, due to design flaws, though Nvidia says it has fixed the issue. CEO Jensen Huang stated on the call that "the anticipation for Blackwell is incredible" and that samples of the chip were "shipping to our partners and customers."
Jensen Huang. (Photo by MOHD RASFAN/AFP via Getty Images)
Nvidia's revenue forecast for its third quarter may have also been a contributor to the company missing the mark. The company said revenue would be around $32.5 billion, which was lower than expectations of a number closer to $33 billion.
Nvidia counts other tech giants like Microsoft and Meta as some of its biggest clients.
Related: Nvidia CEO Jensen Huang Turned Down a Merger Offer in the Company's Early Days, According to Insiders. Here's Why.
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