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Shares of Nvidia (NVDA) today are down more than -3%, falling back from Monday’s record high after investors were underwhelmed as the company failed to meet lofty expectations. Nvidia late Tuesday reported Q3 revenue of $18.12 billion, well above the consensus of $16.09 billion, and gave an outlook that was seen as strong. However, shares retreated after the company forecast Q4 revenue of $20 billion, plus or minus 2%, which was above the consensus of $17.9 billion but below an even loftier whisper number of $21 billion.
Nvidia’s earnings results come at a time of high expectations for megacap technology stocks that have rallied substantially this year. Ahead of Tuesday’s earnings results, Nvidia accounted for 15% of the market-cap weighted S&P 500 Index’s rally this year. The artificial intelligence (AI) craze has sent shares of Nvidia soaring +241% this year, and the stock is not far below Monday’s record high of $505.48 a share. Nvidia’s market capitalization is now more than $1 trillion, bigger than that of Intel (INTC), which until recently was the world’s largest chipmaker.
Demand for Nvidia’s graphic chips has surged as the processors crunch more data by performing calculations in parallel and have become the go-to tool for training AI services. Nvidia reported Q3 revenue in its data center division, the star performer in its operations, with $14.5 billion of revenue, up +279% from last year. Wolfe Research said that setting aside the outsized expectations, “Nvidia’s results continue to be astounding” and are particularly impressive given that U.S. restrictions on China are hurting sales. Moreover, Nvidia announced new chips designed for China that could help that market rebound.
Nvidia’s success has spurred its competitors to ramp up production of their own micro-processing chips to compete in the AI market. Microsoft (MSFT) unveiled its own in-house AI processor last week, and Amazon.com (AMZN) announced a similar effort for its Amazon Web Services. Also, Advanced Micro Devices (AMD) said it will soon debut its new MI300 processor to compete with Nvidia. Another headwind for Nvidia is the U.S. curbs on tech exports to China, the largest market for chips. Although, Nvidia said the restrictions won’t affect its sales for now, given the huge demand for its products elsewhere.
Nvidia CFO Kress said guidance for Q4 would have been higher absent the new rules on China shipments and that the company is working on some new chips for China that won’t trigger export restrictions. Nvidia CEO Huang said the company is adding more supply and that the expanding use of AI hardware by software providers, governments, and corporate customers gives him confidence that demand will continue to increase. Nvidia is one of the few companies making serious money from the AI craze, which has accelerated since the public debut of OpenAI’s ChatGPT in November 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
