Financial folks have high standards. Maybe too high — given that Nvidia smashed earnings Wednesday but the stock still moved lower.

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Nvidia beats expectations by smaller margin

Death, taxes, and Nvidia reporting ridiculous earnings. 

Over the last couple years, no company has proven more reliable when it comes to delivering shareholder value.

After markets closed Wednesday, the investing world witnessed yet another earnings beat from Nvidia: 

• Earnings per share: $0.68 adjusted, beating consensus estimates for $0.64

• Revenue: $30.04 billion, beating consensus estimates for $28.7 billion

That revenue figure represents 122% growth compared to one year ago, which executives chalked up to surging demand for data center chips. 

The company also announced it has approved $50 billion in share buybacks.

For the third quarter, Nvidia forecasts about $32.5 billion in revenue, above the average analyst estimate for $31.77 billion but lower than the highest guesses for $37.9 billion.

Despite the earnings beat, however, the stock did not go up.

Shares fell more than 7.5% after the report, likely because the numbers did not beat expectations as much as the usual absurd amount. 

Chip rivals including Super Micro, Taiwan Semiconductor, and AMD also declined after hours.

“This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season,” said Ryan Detrick, chief market strategist at Carson Group.

The chart from Wednesday is worth revisiting.

Nvidia has added more than $3 trillion in market cap since the day ChatGPT debuted, highlighting how tied the stock has been to the rise of AI. 

Investors have piled in the whole ride up. 

Notably, Nvidia employees have also gained handsomely, with the climbing stock turning many staffers into millionaires.

But questions have circulated for months now as to whether Nvidia could continue at its breakneck trajectory.

While Nvidia has been able to surpass analysts earnings estimates for multiple quarters in a row, it has beaten expectations by a smaller and smaller margin in 2024.

Here’s the amount Nvidia has beat estimates by over the last four quarters, not including Wednesday’s results:

• July 2023: +32.6%

• October 2023: +19.4%

• January 2023: +11.9%

• April 2024: +9.8%

“Nvidia’s weighting in the S&P 500 (6.6%) is larger than 5 entire sectors, and its tentpole status as the definitive Gen AI play further reinforces its structural importance to US equities,” wrote DataTrek Research co-founders Nicholas Colas and Jessica Rabe in a note ahead of Wednesday’s earnings. 

For now, there’s little sign that investors should back off the AI play.

Nvidia, for one, isn’t going away anytime soon given that it has an endless stream of demand for its chips and products. It’s wedge as the so-called “picks-and-shovels” producer in the AI gold rush will be hard to dismantle.

Meanwhile, Amazon, Meta, and Google look poised to deploy billions upon billions of capital in a spending war over AI-related resources — with much of that going straight into Nvidia’s coffers.

And Elon Musk, for his part, has said that his startup xAI will need hundreds of thousands of chips from Nvidia within the coming months. 

The big question is whether those investments can yield some degree of real-world results. 

“What we continue to hear is companies continuing plans to invest in AI, which is great for chipmakers such as Nvidia,” said JJ Kinahan, the president of tastytrade.

“Still, at some point companies making these massive investments will have to show a return on those investments.”

Comments or feedback? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

🗞️ Warren Buffett is selling more stock. Berkshire Hathaway has unloaded $981.9 million worth of Bank of America shares, a regulatory filing showed. The conglomerate has been an active seller all summer. It still owns 903.8 million shares of the Wall Street firm. (Barron’s)

📈 Salesforce saw strong earnings. The company beat analyst expectations Wednesday, reporting strong second-quarter profits and revenue. The stock climbed more than 4% in after-hours trading, moving the opposite direction of Nvidia. (Reuters)

👑 Nvidia makes tech rivals jealous. Staffers at Meta and Google are reportedly envious of the compensation packages earned by those at Nvidia. An anonymous forum for tech workers showed chatter of Nvidia employees sharing multi-million dollar net worths and thanking Jensen Huang. (Fortune)

Rapid-fire:

• Berkshire Hathaway hit $1 trillion market capitalization for the first time ever (WSJ)

• 30-year mortgage rates dropped to its lowest since April 2023 (Reuters)

• Super Micro stock tumbled further as the company announced it would delay filing its annual report for the fiscal year — one day after a short-seller published a scathing report on the company (Yahoo Finance)

• ChatGPT-creator OpenAI is in talks for a $100 billion valuation (WSJ)

• Abercrombie & Fitch beat earnings but warned it could face trouble as the economy slows down (Business Insider)

• CrowdStrike stock beat earnings estimates and the stock climbed after hours Wednesday (Bloomberg)

Interview:

Investor Anthony Pompliano and I discussed Nvidia and they hype behind AI stocks, Warren Buffett’s $1 trillion milestone, the Fed, and more in a wide-ranging interview:

Last thing:

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