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Nvidia's Earnings Report: The Problem of Being Priced for Perfection
Nvidia's recent earnings report has sparked significant interest in the tech industry. The company's performance exceeded Wall Street estimates across the board, but its gross margin showed a slight decline. This mixed bag of results has raised questions about whether Nvidia's stock is overvalued.
Key Highlights
- Revenue Surge: Nvidia's revenue surged 122% year-over-year, surpassing the anticipated growth of 113%. This marks the company's fourth consecutive quarter of triple-digit revenue growth.
- Gross Margin Slippage: Despite the revenue growth, Nvidia's gross margin declined slightly, from 784% in the previous quarter to 751%. This decline has raised concerns among investors.
- Share Buyback Initiative: Nvidia announced a $50 billion repurchase program to enhance its share buyback initiative, a move aimed at boosting investor confidence.
- Market Expectations: Analysts had projected revenue of around $32 billion for the current period, which Nvidia's estimates closely align with. However, some analysts had expected even higher figures, leading to a mixed market reaction.
Market Reaction
Nvidia's stock initially fell by 7% during extended trading hours, reflecting the mixed sentiment among investors. The company's market capitalization has fluctuated significantly over the past two years, peaking in June before plummeting nearly 30% over the subsequent seven weeks. Despite this volatility, Nvidia's stock has recouped a significant portion of those losses.
Analyst Insights
Stacy Rasgon from Bernstein noted that market expectations were hovering around $33 billion to $34 billion, suggesting Nvidia would need to significantly exceed analyst forecasts to see a positive market reaction. Rasgon, who advocates for purchasing Nvidia shares, emphasized that there are no signs of diminishing demand for the company’s graphics processing units (GPUs), essential for AI model development and operation.
Future Outlook
Nvidia projected that it would deliver "several billion dollars" in Blackwell revenue in the fiscal third quarter, concluding in October. Blackwell represents the latest advancement in its technology lineup, following Hopper. Concerns regarding potential delays for Blackwell were addressed by CFO Colette Kress, who assured that "supply and availability have improved." However, Kress acknowledged that "demand for Blackwell platforms significantly exceeds supply, and we expect this trend to persist into next year."
CEO's Stance
During the earnings call, CEO Jensen Huang took a different stance on customer profitability regarding their investments in Nvidia. He asserted that Nvidia's technology would increasingly replace traditional processors from companies like Intel and AMD, and that generative AI would begin to handle more coding tasks. Huang noted that companies like Meta are utilizing Nvidia chips for recommendation systems, and nations are ramping up chip purchases.
Original Article: https://www.cnbc.com/2024/08/28/nvidias-earnings-report-shows-problem-of-being-priced-for-perfection.html
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