Nvidia’s Robust Earnings Fall Short of Sky-High Expectations

Nvidia Stock

Nvidia (NASDAQ:NVDA) shares are experiencing a decline of more than -3% today, retracing from Monday’s record high, as investors expressed disappointment over the company’s failure to meet elevated expectations. Late Tuesday, Nvidia reported Q3 revenue of $18.12 billion, exceeding the consensus of $16.09 billion, and provided a forward-looking outlook perceived as strong. However, the stock retreated after the company projected Q4 revenue of $20 billion, plus or minus 2%, surpassing the consensus of $17.9 billion but falling short of an even more ambitious whisper number of $21 billion.

The release of Nvidia’s earnings aligns with a period of heightened anticipation for mega-cap technology stocks that have witnessed substantial gains throughout the year. Nvidia, accounting for 15% of the market-cap-weighted S&P 500 Index’s rally this year, has been a major player in the artificial intelligence (AI) trend, driving its shares up by +241% in 2023. The company’s market capitalization now exceeds $1 trillion, surpassing that of Intel (NASDAQ:INTC), the former world’s largest chipmaker.

Nvidia’s graphic chips have experienced surging demand, particularly in its data center division, which reported $14.5 billion in revenue, marking a remarkable +279% increase from the previous year. Despite challenges posed by U.S. restrictions on sales to China, Nvidia’s performance has been deemed impressive by analysts, with the company introducing new chips designed for the Chinese market to stimulate a rebound.

The success of Nvidia has prompted competitors like Microsoft (NASDAQ:MSFT) and Amazon.com (NASDAQ:AMZN) to unveil their own AI processors, while Advanced Micro Devices (NASDAQ:AMD) plans to introduce its MI300 processor to compete directly with Nvidia. U.S. tech export restrictions to China, the largest chip market, present a headwind for Nvidia. However, the company asserts that the current demand for its products in other regions mitigates the impact.

Nvidia’s CFO, Kress, acknowledged that Q4 guidance would have been higher without the new China shipment rules and revealed the company’s efforts to develop chips for China that avoid triggering export restrictions. CEO Huang expressed confidence in meeting demand, fueled by various stakeholders’ expanding use of AI hardware. In the landscape of AI profitability, Nvidia stands out as one of the few companies capitalizing significantly on the AI trend, which gained momentum after the public debut of OpenAI’s ChatGPT in November 2022.

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