Nvidia's stock began this morning with a drop of over 4%, building on the initial 2.1% decline that followed its Q2 results yesterday. It bounced back a little soon after but remains in the red.
This may seem a strange market reaction to results that beat consensus expectations on revenues, revenue outlook, and profits— and that came accompanied by an extra $50 billion share buyback—but it seems some analysts weren’t expecting the law of large numbers to kick in just yet. Nvidia reported more than 200% revenue growth for the previous three quarters, and that pace couldn't continue forever.
"The size of the beat this time was much smaller than we've been seeing,” said Carson Group market strategist Ryan Detrick, as quoted by Reuters . "Even future guidance was raised, but again not by the tune from previous quarters. This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season.”
Swissquote Bank’s Ipek Ozkardeskaya also said Nvidia’s “shiny results were clouded” by its confirmation of a reported design flaw in Blackwell, the next generation of Nvidia’s top-end AI chips. The reports earlier this month said the flaw meant Blackwell would be delayed by three months or more , which could have hit customers’ plans to be running large clusters of the things in the first quarter of next year.
But in the event, the necessary design change was more about increasing production yields than altering Blackwell’s architecture. It's fixed now, and Nvidia CFO Collette Kress said “several billion dollars in Blackwell” were on track to ship in Q4. Nvidia also still expects shipments of its current Hopper generation to keep growing.
So in short, there’s no obvious huge worry about Nvidia, other than the fact that there’s a natural limit to any company’s growth. “The competition is not even close to [taking] market share from Nvidia and thus the investment case still looks solid,” said Saxo Bank chief investment strategist Peter Garnry.
And if Nvidia’s case is solid, does that imply the same for the wider AI sector , for which Nvidia is often seen as a bellwether? Perhaps. Big Tech’s AI spending is clearly continuing apace, but there are reasons for concern.
The Metas and Microsofts of this world still need to demonstrate that all their AI investment is really paying off. For that to happen, their customers must demonstrate sustainable enthusiasm, and a willingness to pay, for the benefits of generative AI. That jury remains out.
It is also, as always, worth keeping an eye on regulatory developments that could hit AI. Meta and Apple are both refusing to release their AIs in Europe, for various regulatory reasons. California’s State Assembly also passed a significant AI safety bill yesterday—its proponents say it’s a light-touch first step in AI regulation, but opponents have warned of stifling innovation . If the bill wins Gov. Gavin Newsom’s signature and the latter camp is correct, that could lead to some kind of reduction in demand for Nvidia’s wares. Maybe.
For all the feverish anticipation that existed for yesterday’s Nvidia results—traders thought they would be looking at a record 11% swing in its shares—nothing much has really changed. But, markets being the sentimental beasts that they are, the realization that “number go up” can’t last forever has hit not only Nvidia but also other chip firms like SK Hynix and Samsung Electronics , whose shares fell by 5.4% and 3.1% respectively in South Korea today.
More news below.
David Meyer
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This story was originally featured on Fortune.com
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