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- 📉 Nvidia Crashes 8% Despite Record Earnings
📉 Nvidia Crashes 8% Despite Record Earnings
Are the Good Times Coming to an End?
Maxwell Nicholson
September 01, 2024
Table of Contents
TOP STORY
📉 Nvidia Crashes 8% Despite Record Earnings, Are the Good Times Coming to an End?
🔥 Nvidia just reported incredible earnings, with +122% revenue growth and +168% profit growth compared to last year.
😰 But despite excellent numbers, the stock is down nearly -8% this week, shedding $250B in market cap!
🤔 So let’s try to make sense of why Nvidia is down, whether it will bounce back, and what this means for the broader market.
🤑 Despite this week’s drop Nvidia stock is still up 145% this year, and 2,748% over the past 5 years, meaning $1,000 invested 5 years ago would be worth ~$30,000 today.
📊 First, Let’s Look at the Numbers
🔥 Nvidia has been on a hot streak, with 5 quarters of triple-digit year-over-year revenue growth in a row.
Here’s a breakdown of the key figures this quarter:
💰 Revenue: $30B: +122% from last year, beating estimates by 4.1%
🤖 Data Center Revenue: $26.3B: +154% from last year (and up an insane 20x over the past 4 years from 25% of total revenue to 87%)
🤑 Net Income: $16.6B: +168% from last year, beating estimates by 10.7%
💡 Along with earnings, Nvidia also announced $50B in stock buybacks - typically a sign that management believes the company is undervalued.
😰 Are the Cracks Showing?
Despite the strong results, it wasn’t all a perfect picture. There were 3 main factors that spooked investors and were the most likely reasons for the stock drop:
🐢 1. Growth is Slowing
The #1 issue Nvidia faces is a slowdown in growth.
While 122% year-over-year growth is no doubt impressive, it marks a clear deceleration from the 200%+ growth numbers investors have grown used to.
Same with Nvidia beating expectations by 4.1% - on the surface, this is a great number, but feels small when compared to Nvidia’s double-digit beats over the past 3 quarters.
To make matters worse, Nvidia’s projected revenue for Q3 of $32.5 billion would mean a quarterly growth slowdown from +15% to only +8.3%.
This shows one of the challenges of being ‘priced for perfection’ where the hype around the earnings is so high that even incredible numbers aren’t enough. And with Nvidia’s valuation being much more based on future growth than current results, these slowdowns can really hurt the stock.
Nvidia would have to beat all expectations by a long way in order to see a pop in the stock after the numbers.
😪 2. Disappointing Gross Margins
Revenue growth wasn’t the only concern - gross margins decreased -3.3% from last quarter to 75.1%, with Nvidia’s projections of ‘mid 70% gross margin’ falling short of the expected 76.4%
💡 Gross Margin is the percentage of revenue left after subtracing the company’s production costs (in Nvidia’s case, the cost of manufacturing the chips)
⏰ 3. Delays with the Blackwell AI Chip
The final red mark on Nvidia’s record was the production delays in the next-generation Blackwell chip, which is set to replace Nvidia’s flagship ‘Hopper’ chips.
While delays aren’t ideal, this one will likely have a fairly small impact. Investors were previously worried that customers would delay purchasing Hopper chips as they waited to buy Blackwells, but with the Hopper’s continued strong performance, those concerns seem mostly overblown.
The demand for Nvidia legacy Hopper chips is really strong and the appetite for Blackwell is "incredible."
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📉 Even though the company reported excellent earnings, its forecast hinted at a possible slowdown in the rapid growth it has recently experienced, leading to a drop in NVIDIA’s stock price. The company still expects strong growth, just at a slower pace.
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TOP STORY CONTINUED
📈 Analysts Remain Bullish on Nvidia, Revising Price Targets Higher
While the stock fell this week, analysts continue to be optimistic about Nvidia, with many of the leading analysts maintaining and increasing price targets:
🟢 Goldman Sachs: $135
🟢 Barclays: $145
🟢 Morgan Stanley: $144→$150
🟢 Bernstein: $125→$150
🟢 JP Morgan: $115→$155
🟢 TD Cowen: $165
🟢 Cantor Fitzgerald: $175
According to TipRanks, the average price target for Nvidia across 44 analysts is $151.49 - representing a 26.91% upside on the current price.
💡 Here are a few notable comments from the analysts:
“Nvidia’s data center revenue opportunity across cloud, consumer internet, and enterprise customers remains strong. With a redesign of the Blackwell GPU, management expects several billion dollars in revenue in FY4Q, supported by growing Hopper revenue.”
“We expect gross margins to improve throughout next year, with Nvidia maintaining a strong lead over competitors with its aggressive product launch cadence.”
“We do not see any change to the AI story underpinning Nvidia, and think (today’s) potential pullback is simply another buying opportunity.”
“The introduction of “several” billion dollars of incremental Blackwell revenue in the fiscal Q4 will contribute to solid further sequential growth.”
🌼 The Blossom community also leaned bullish on Nvidia. While the stock ranked as the #1 Most Bought and #1 Most Sold in the community, there was more than twice as much buying as selling!
🙋♂️ Will the Good Times Continue? My Thoughts
I (Max, aka @maxstocks on Blossom) do my best to summarize the news for you all each week, and sometimes I like to share my own perspective, but I’ll be the first to call out that it is far less researched or informed as the analysts above!
💡 That said, for those interested, here are my high-level thoughts on Nvidia and the current markets:
🥶 The AI race seems to me most akin to the ‘Cold War,’ where the mega-tech companies are in an arms race to invest billions into AI infrastructure not because there is a clear revenue/profit motive but because they are scared to be left behind.
👷♀️ Mark Zuckerberg even said that he thinks companies are “overbuilding now because the downside of being behind is that you’re out of position for the most important technology for the next 10 to 15 years.”
📈 As long as this ‘overbuilding’ continues, Nvidia will continue to crush it since they essentially have a monopoly on building the AI infrastructure.
😬 However, if investors stop rewarding this overbuilding with high valuations and start demanding Big Tech show returns on these massive investments, Big Tech may need to reign in spending - which would be very bad news for Nvidia.
🤔 The main question for me then is how long the arms race will continue and if the returns from these massive AI investments will catch up fast enough - if yes, I think the good times will continue. If not, we could see a big correction!
🙋♂️ What are your thoughts? Join the discussion on Blossom and read through the over 100 posts about Nvidia in the last week!
🎥 P.S. If you want video breakdowns of the stock market news each week make sure you follow me on Instagram as well!
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