The chipmaking giant Nvidia (NASDAQ: NVDA), one of the most impressive blue-chip stocks in the 2024 market and a pivotal player in the artificial intelligence (AI) boom, experienced a somewhat unexpected share price drop in the extended session between November 20 and November 21.
The crash – which amounts to 3.41% at press time – came as a surprise as it followed an otherwise strong Q3 earnings report published after the closing bell on Wednesday.
Specifically, Nvidia announced an earnings-per-share (EPS) of $0.81 – better than the expected $0.75 – and a revenue of $35.08 billion – approximately $5 billion higher than in the preceding quarter and above the expected $33.16 billion.
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Though the fall may appear surprising given the provided figures, it follows something of a trend among big tech companies.
Indeed, as seen about a month earlier with Advanced Micro Devices (NASDAQ: AMD), investors appear ever keener on ever greater margins and growth and tend to react negatively even to otherwise strong performance.
Why Nvidia stock’s post-earnings decline isn’t surprising
NVDA share price decline – a decline that saw the stock move from its latest closing price of $145.89 to its pre-market price of $140.92 – to its otherwise strong performance in the last two years.
Over the years, there has been much discussion about whether the AI boom is, in fact, an AI bubble. Nvidia has been seen as a leader in both scenarios, making it a natural gauge of the sector’s health.
The uncertainty is further bolstered by the fact that the semiconductor giant’s revenue growth – though itself massive – has not kept pace with the company’s valuation.
For example, in its report published on January 31, 2023, Nvidia revealed a revenue of approximately $6 billion and boasted a market capitalization of $364 billion at the end of 2022. By November 21, 2024, revenue had increased about sixfold, but valuation rocketed tenfold as the chipmaker is now worth nearly $3.6 trillion.
The perception of instability is perhaps further reinforced when comparing Nvidia’s revenue with the other three trillion-dollar companies. Apple’s (NASDAQ: AAPL) latest report revealed the company had accrued $95 billion within a quarter, and Microsoft (NASDAQ: MSFT) reported $65 billion – nearly twice as high as the chipmaker, despite a $500 billion lower market cap.
Alphabet (NASDAQ: GOOGL) – a $2 trillion company – similarly unveiled a revenue of $88 billion in its latest quarterly report.
Did disputed Blackwell issues trigger the selloff?
The apparent lack of confidence might have come from some business-side issues. Indeed, despite CEO Jensen Huang’s saying demand for the Blackwell infrastructure was ‘insane’ and unveiling a highly ambitious plan for the future, the chipset was, in many ways, marked by technical mishaps.
First, there were reports of a since-fixed design flaw with Blackwell accompanied by significant speculation about whether Nvidia or Taiwan Semiconductor Manufacturing (NYSE: TSM) was to blame, and more recently, it was reported the product is allegedly prone to overheating.
Finally, it could be argued that NVDA stock’s immediate decline was inevitable due to its high price and the general unease. Such a dynamic is also revealed by the shares’ 0.76% decline during the latest session that occurred despite the Wall Street analysts overwhelmingly agreeing the report would not disappoint.
Analysts reaction to Nvidia earnings opposite to investors
Speaking of Street experts, their reaction to the earnings was, in many ways, the exact opposite of that of investors.
Jim Cramer, for example, repeatedly questioned the thinking of NVDA traders and wondered if they were hoping to cash in on the 2024 growth and re-enter with new positions after taking advantage of the earnings volatility.
Wedbush’s Dan Ives – known perhaps as the biggest tech bull out among prominent experts – was himself full of praise for Nvidia’s earnings, calling it a ‘blockbuster’ report, ‘eye-popping,’ and ‘massive.’
Featured image via Shutterstock
