Nvidia shares drop despite record sales

The recent decline in Nvidia's stock prices, despite the company reporting record sales, presents a paradox that merits examination. Nvidia, a prominent player in the semiconductor industry, has experienced unprecedented demand for its graphics processing units (GPUs), particularly due to the booming sectors of artificial intelligence (AI) and gaming. The company's quarterly earnings report revealed substantial revenue growth driven by these lucrative markets, leading analysts to predict further financial success. However, contrary to these optimistic projections, Nvidia's shares have seen a notable drop in value.

This phenomenon can be attributed to several interrelated factors. Firstly, market dynamics play a crucial role; investors often react not only to current performance but also to future expectations. In this instance, while Nvidia's sales figures were impressive, concerns regarding potential market saturation and increased competition from rival companies may have led investors to reassess their valuations of the stock. Additionally, macroeconomic factors such as inflation rates and interest rate hikes can influence investor sentiment significantly. These broader economic conditions can create an environment where even strong earnings reports do not translate into rising stock prices. The Silicon Valley-based company sought to reassure investors that it would see “several billion dollars” in revenue this fiscal year from the next generation of its powerful artificial intelligence chips, despite hitting production problems. However, Nvidia’s outlook for the current quarter fell shy of the most ambitious forecasts from analysts who have become accustomed to runaway results from the chipmaker. Revenue in the three months to July 28 was $30bn, up 122 per cent from a year ago and ahead of analysts’ forecasts of $28.7bn. In the third quarter, Nvidia is expecting $32.5bn in revenue, plus or minus 2 per cent, only just ahead of analysts’ consensus expectations.

One might have been the lack of detail on delays that hit Blackwell chip production – although the company suggested those manufacturing issues had been sorted by TSMC, the Taiwan semiconductor manufacturer that builds Nvidia’s most advanced chips.

But another may be that the company’s growth has been so enormous that it needs to not just beat expectations to rise further, but smash them.

This has helped the company so far, but it could also hurt its valuation if AI fails to deliver after firms have invested billions of dollars in the technology, Mr Nguyen said.

"A thousand use cases for AI is not enough. You need a million."

Mr Nguyen also said Nvidia's first-mover advantage means it has market-leading products, which its customers have spent decades using and has a "software ecosystem".

He said that rivals, such as Intel, could "chip away" at Nvidia's market share if they developed a better product, though he said this would take time.

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Sarah H

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