A sign for Nvidia's headquarters is seen in Santa Clara, California, on May 31, 2023. (AP Photo/Jeff Chiu, File) · ASSOCIATED PRESS
Nvidia shares took a sharp hit on Thursday, dropping 8.5% after the company’s latest earnings report exceeded Wall Street expectations but failed to impress investors. The dip pushed its market valuation below the $3 trillion mark, falling behind Apple and Microsoft.
Revenue Up, Margins Disappoint
Despite reporting a strong revenue of $39.3 billion and earnings per share of $0.89, Nvidia’s guidance for the upcoming quarter’s gross margin worried investors. The company projected a 71% gross margin for the first quarter, lower than the previous quarter’s 73% and below analyst predictions of 72.1%. This decline is partly due to higher costs related to scaling up shipments of its Blackwell AI chips.
Wall Street Reacts
While Nvidia’s financial performance was solid, analysts noted a lack of excitement from investors. William Stein of Truist Securities remarked that the market seemed unfazed, while Benchmark’s Cody Acree pointed out concerns over pricing pressure and increasing competition.
Bernstein analyst Stacy Rasgon acknowledged that the slight margin dip might be a small issue, but given Nvidia’s booming demand, shipping products quickly remains the priority. JPMorgan’s Harlan Sur echoed similar sentiments, highlighting Nvidia’s ongoing efforts to meet soaring customer demand.
Blackwell AI Chips Fuel Growth
A key highlight of Nvidia’s earnings was the success of its Blackwell AI GPUs, which generated $11 billion in revenue during the fourth quarter. CFO Colette Kress called it the company’s “fastest product ramp” to date. This achievement comes despite earlier reports of production delays and overheating issues, which had raised concerns among investors.
CEO Jensen Huang reassured the market that Blackwell is now “fully ramped” and experiencing “extraordinary demand.” Analysts from Stifel and Raymond James believe the rapid Blackwell rollout reduces future risks and ensures a strong growth trajectory for Nvidia.
Broader Market Impact
Nvidia’s stock slump rippled across the semiconductor sector. Micron, which supplies memory chips for Nvidia’s GPUs, saw a 6% decline. Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures Nvidia’s chips, dropped nearly 7%. Server makers Dell and Super Micro Computer also faced sharp declines of around 7% and 16%, respectively.
China Market Declines
Nvidia also revealed that sales in China dropped to 14% of total revenue, which may ease concerns about potential US export restrictions on its chips. In January, Nvidia’s stock took a hit following reports that the US government might tighten controls on semiconductor exports to China.
Final Takeaway
While Nvidia continues to dominate the AI chip market, its latest earnings reveal growing challenges, including margin pressures and heightened competition. Despite Thursday’s stock dip, strong demand for its Blackwell GPUs suggests Nvidia remains a key player in the AI boom.
