- The highly anticipated earnings report from Nvidia showed healthy growth in terms of revenue, up 15% from Q1, especially for its data center business that’s being driven by a surge in demand for AI infrastructure.
- Yet, its stock dropped sharply by 7% due to higher investor expectations. This caused the overall tech-heavy to lose ground and has set a cautious tone for the growth of AI companies.
AI hardware and chips manufacturer Nvidia announced its financial performance for Q2 2024 early Thursday, with millions of investors and experts predicting the AI leader to beat expectations. Nvidia did not disappoint as it recorded a 15% increase in quarterly revenue, and is up by 122% on a year-on-year basis. Moreover, its data center revenue jumped to $26.3 billion, a 16% improvement from Q1 and over 154% from a year ago.
These figures were largely in line with the positive sentiments that traders, investors and experts had highlighted before the earnings release. Moreover, there is high anticipation for its upcoming products, like the Blackwell AI Superchip series, Spectrum-X Ethernet for AI and NVIDIA AI Enterprise software. Nvidia CEO Jensen Huang stated post-earnings release, “NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI.”
Despite beating earnings expectations, growing its AI and data centers verticals, and returning $15.4 billion to shareholders through share repurchases and cash dividends, Nvidia’s stock took a sharp dive. At the close of Wednesday’s trading session, it had tumbled nearly 7%, losing roughly $200 billion in market cap, as investors were left disappointed by its slow growth metrics.
Tony Sycamore, an analyst at IG explained, “Nvidia, in some ways, has become a victim of its success, its share price soaring over 180% this year and after beating earnings now in 14 of the past 15 quarters.” The sharp drop shows that investors are wary of Nvidia’s AI-driven rally and that it may be coming to an end soon.
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This sentiment was not limited to Nvidia, as other AI leaders also saw their stock prices take a dip. Shares of Broadcom and Advanced Micro Devices tumbled about 2%, while larger AI players like Microsoft and Amazon took a 1% dive. Even Nvidia’s chip contractor Taiwan Semiconductor Manufacturing Company Limited (TSMC) slid 2.4% when markets opened. Although Nvidia remains 150% in the green so far in 2024, the biggest mover in the AI rally, investors think the AI engine might be losing its steam.
Conclusion
NVIDIA’s robust Q2 performance highlights its continued dominance in the AI industry, driven by growth prospects for products like Blackwell, Spectrum-X Ethernet and its AI chips. Yet, the market’s cautious and kneejerk response to its forecast shows that investor concerns about the sustainability of the tech rally are increasing. AI companies and investors may need to temper their outlooks for the near future, as the market valuations of AI leaders might undergo a possible correction.
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