NVIDIA Corporation (NASDAQ: NVDA) stock lost 10% since the chipmaker posted its third-quarter earnings report last week. Here is what happened:
Analysts note that the stock has had some post-earnings reactions. NVIDIA Corporation (NASDAQ: NVDA) reported impressive quarterly results with sales of $35 billion, a 94% year-over-year growth. Its data center business grew even faster, surging 112% due to robust AI demand. Net profit doubled to $20 billion, and the company also provided a robust outlook for the current quarter, slightly beating Wall Street expectations. Looking at the numbers, initial slips in the stock could have been some profit-taking. After all, the stock has roughly tripled this year.
Then again, the outlook was good, but not great. The company forecasted revenue of $37.5 billion for the fourth quarter, plus or minus 2 percent, compared with analysts’ average estimate of $37.09 billion according to data compiled by LSEG. While the rate of growth is still remarkable, it is clearly a slowdown from previous quarters. The fourth quarter forecast indicates year-to-year growth of about 70% from a year earlier, a stark decline from the 265% annual growth in the year-ago period.
Revenue, while rising 94% on an annual basis during the quarter that ended on Oct. 27, marks a consecutive slowdown from the previous three quarters where sales rose 122%, 262%, and 265% respectively. Adding to these post-earnings reactions is the market chatter revolving around a potential China trade war. On November 25, President-elect Donald Trump said he would be imposing big tariffs on goods coming from China, Canada, and Mexico on the first day he takes office.
Trump, who will be taking office on January 20, separately outlined “an additional 10% tariff, above any additional tariffs” on imports from China, reports Reuters. Bernstein Research analyst Stacy Rasgon, who covers Nvidia and the semiconductor industry, told clients in a note:
“Should they come to pass, the direct impact of these new tariffs on semiconductors would be very small as imports of ‘raw semiconductors’ into the U.S. from these affected countries are tiny”. But he also said, “escalation remains the larger potential worry as overall semiconductor imports (from all countries) might be large enough to be affected by more broad-based actions should the new administration feels so inclined.”
When asked about the potential tariffs and their impact on Nvidia, CEO Jensen Huang said that the company will comply with any regulation that comes along, fully. While the exact impact of the tariffs on Nvidia is unclear, new tariffs would indeed raise barriers to trade and most likely cause problems for Nvidia’s supply chain.
To add to these woes, Dell Technologies (DELL), a major Nvidia customer and partner, is facing a big drop in its stock price after its earnings report on Tuesday, November 26th. Despite server orders hitting a record high, Dell forecasts lower server sales for the fourth quarter since enterprise customers are waiting to get their hands on new systems powered by Nvidia Corp.’s next-generation Blackwell graphics processing unit chips.
As a result, they are shifting to later orders, implying some of them won’t be reflected in the current quarter. Nvidia’s next-generation Blackwell chips won’t go on sale until early next year. Lastly, Nvidia’s stock decline may be partly influenced by lower trading activity, as traders appear to be winding down ahead of the Thanksgiving holiday.
Jim Cramer isn’t concerned though. We summarized his NVDA thoughts yesterday here. According to Cramer, nothing is wrong. After all, we just saw the numbers, and they were great. The growing skepticism around the slowing rate of growth, increased competition, and the concern that investors are probably going to get less bang for their buck is misleading. There isn’t competition from companies such as Amazon, which makes some of its chips to meet specific needs considering Nvidia doesn’t have enough manufacturing capacity to meet demand and that’s why the company’s revenue will keep going up.
Our research director shared his views on NVDA’s earnings results here. He thinks NVDA stock can reach $170 within 3 months. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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