Why are Nvidia shares crashing?

Chipmaker giant Nvidia (NASDAQ: NVDA2024 is one of the market’s most impressive blue-chip stocks and a major player in the artificial intelligence (AI) boom. a little unexpected Share price decline in the extended session from 20 November to 21 November.

The collapse, which accounted for 3.41% at the time of writing, came as a surprise because it came after an otherwise strong third quarter. earnings report It was released after the closing bell on Wednesday.

Specifically, Nvidia reported earnings per share (EPS) of $0.81 (better than the $0.75 expected) and revenue of $35.08 billion (up nearly $5 billion from the previous quarter and above the $33.16 billion expected). .

While the decline may seem surprising given the numbers given, it follows a trend among major tech companies.

Actually, as seen About a month ago with Advanced Micro Devices (NASDAQ: AMD), investors seem increasingly keen on higher margins and growth, and tend to react negatively even to otherwise strong performance.

Why Nvidia shares’ post-earnings drop isn’t surprising

NVDA share price decline – a decline that causes the stock to rise from its last closing price of $145.89 to its pre-market price of $140.92, resulting in otherwise strong performance in the last two years.

Over the years, there has been much debate about whether the AI ​​boom is actually an AI bubble. Nvidia is seen as the leader in both scenarios, making it a natural indicator of the health of the industry.

The fact that the semiconductor giant’s revenue growth (albeit very large) has not kept up with the company’s valuation pace further increases uncertainties.

For example, Nvidia announced in its report published on January 31, 2023 that it generated approximately $6 billion in revenue and had a market value of $364 billion by the end of 2022. As of November 21, 2024, revenue has increased nearly sixfold, but valuation has skyrocketed. That’s ten times the chip maker’s current valuation of about $3.6 trillion.

The perception of instability is perhaps even stronger when Nvidia’s revenue is compared to other three trillion dollar companies. Apple (NASDAQ: AAPL)’s latest report said the company had revenue of $95 billion in the quarter, and Microsoft (NASDAQ: MSFT) reported $65 billion; That was nearly twice as much as the chip maker, despite its lower market cap of $500 billion.

Alphabet (NASDAQ: Google)—a $2 trillion company—similarly reported revenue of $88 billion in its latest quarterly report.

Did controversial Blackwell issues trigger sales?

The apparent lack of confidence may be due to some work-related issues. Indeed, CEO Jensen Huang saying Demand for the Blackwell infrastructure was ‘insane’, and while it unveiled a hugely ambitious plan for the future, the chipset was marked by technical setbacks in many respects.

First, there were reports that a design flaw had been fixed at Blackwell, and serious speculation whether it was Nvidia’s or Taiwan Semiconductor Manufacturing’s (NYSE:) fault. TSM) was guilty and recently the product claimed to be prone to overheating.

Finally, it can be said that the sudden decline of NVDA shares was inevitable due to its high price and general uneasiness. Such a dynamic is also evident in the 0.76% drop in shares in the latest session, even though Wall Street analysts overwhelmingly agreed that the report would not disappoint.

Analysts react to Nvidia earnings unlike investors

Speaking of street pundits, their reaction to earnings was in many ways the exact opposite of investors’.

For example, Jim Cramer has repeatedly questioned They wondered whether NVDA investors were hoping to cash in on 2024 growth and re-enter with new positions after taking advantage of earnings volatility.

Wedbush’s Dan Ives — known among leading pundits as perhaps the biggest technology advocate — was himself exalted He called it a ‘blockbuster’, ‘dazzling’ and ‘huge’ report for Nvidia’s earnings.

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