Nvidia Corporation’s (NASDAQ:NVDA) most recent earnings report, issued at the beginning of this week, pointed up the current mix of elation and trepidation coursing through market investors. The semiconductor manufacturing behemoth beat Wall Street’s expectations for revenue and adjusted earnings by a wide margin. Yet, it announced bleak sales from its most important data center segment for the second quarter in a row. This mixed performance fueled doubts about the sustainability of Nvidia’s stunning growth trajectory amid a rapidly expanding competitive landscape.
It’s easy to see why. Nvidia just posted stunning second-quarter results. The company announced adjusted earnings of $1.05 per share, on revenue of $46.74 billion, rounding out a robust overall performance for the company. The silver lining to this news is that the data center revenue came in well below expectations. Consequently, Nvidia’s share price fell by almost 2% in after-hours trade. Even after this pullback, a lot of investors remain hopeful about the company’s long-term prospects in the artificial intelligence space. While they’re disappointed, they think the drop could be short-lived.
Nvidia’s CEO, Jensen Huang, is set to address key issues and future strategies at the upcoming Nvidia GPU Technology Conference. For that, industry experts say Huang’s bird’s eye view will be instrumental. They’ll prove invaluable to the company in advancing its mission, especially in the area of data center performance. Restoring sales access to China would dramatically increase top-line growth in subsequent quarters. This is a positive step that could help reduce some of the growing anxiety surrounding the emerging data center revenue boom.
Investors are considering the wider market ramifications after Nvidia’s outlook. It remains to be seen whether the market makes such an adjustment,” said Thomas Martin, a senior portfolio manager with Globalt Investments.
“I’m not sure we need to cut at all,” – Thomas Martin
Martin emphasized that inflation continues to be a pressing concern even with a somewhat stable job market.
“Inflation is still an issue, and employment is not bad enough to warrant a cut,” – Thomas Martin
As the market contemplates Nvidia’s performance, Adam Turnquist from LPL Financial highlighted that historical trends show promise for September.
“The trend is your friend when it comes to September,” – Adam Turnquist
Turnquist went on to say that seasonal data provides a glimpse into stock’s normal behavior. It doesn’t consider the state of the market today.
“Seasonal data represents the typical climate for stocks but not the weather,” – Adam Turnquist
Currently, he observed that “the weather for the S&P 500 is filled with blue skies and record highs,” suggesting that investor sentiment remains resilient despite Nvidia’s mixed results.
Despite the temporary setback in data center revenue, some analysts believe that Nvidia’s strong brand and technological edge will facilitate a rotation out of mega-cap tech stocks and into less favored sectors of the market. Adam Crisafulli, a strategist at the consulting firm Vital Knowledge, wrote,
“Rather than trigger a slump in the market overall, Nvidia should help encourage an ongoing rotation out of mega-cap tech/momentum stocks and into some of the more unloved parts of the market, a process that’s been underway for the last several sessions,” – Adam Crisafulli
Dan Niles, a known tech investor, valued Nvidia as a sole supplier in the market. He explained that despite the rivalry, Nvidia remains an “800-pound gorilla” in the growing field.
“I’m not saying they’re nearly as good as the U.S. technology, but at some point a Ford is just as good as a Ferrari, right? It gets the job done,” – Dan Niles
Paul Meeks, analyst at Independent Research Group, spoke to the possible geopolitical effects on Nvidia’s business practices.
“Even if Nvidia can’t sell or the Chinese don’t want the H20 chip, I believe Trump’s broader package will include leeway for Nvidia and AMD to ship next-gen chips,” – Paul Meeks