Nvidia stock slips despite 2Q earnings topping Wall Street estimates, high AI chip demand
Nvidia may have exceeded Wall Street estimates as its profit jumped — buffeted by the chipmaking dominance that has cemented Nvidia's place as the poster child of the artificial intelligence boom — but investors seemed less than impressed.
The company reported a net income of to $16.6 billion. Adjusted for one-time items, net income was $16.95 billion. Revenue rose to $30 billion, up 122% from a year ago and 15% from the previous quarter.
By comparison, S&P 500 companies overall are expected to deliver just 5% growth in revenue for the quarter, according to FactSet. Still, Nvidia shares slipped nearly 4% in after-hours trading.
Ryan Detrick, chief market strategist at Carson Group, said that despite growing revenue "it appears the bar was just set a tad too high this earnings season."
"Death, taxes, and NVDA beats on earnings are three things you can bank on," Detrick said. "Here's the issue. The size of the beat this time was much smaller than we've been seeing. Even future guidance was raised, but again not by the tune from previous quarters."
The company reported second-quarter adjusted earnings per share of 68 cents per share, up from 27 cents a year ago. Nvidia said it expects third quarter revenue to grow to $32.5 billion, plus or minus 2%.
Nvidia has led the artificial intelligence sector to become one of the stock market's biggest companies, as tech giants continue to spend heavily on the company's chips and data centers needed to train and operate their AI systems.
"The people who are investing in Nvidia infrastructure are getting returns on it right away," Jensen Huang, founder and CEO of Nvidia, said on a call with analysts. "It's the best ROI infrastructure, computing infrastructure investment you can make today."
Demand for generative AI products that can compose documents, make images and serve as personal assistants has fueled sales of Nvidia's specialized chips over the last year. In June, Nvidia briefly rose to become the most valuable company in the S&P 500. The company is now worth over $3 trillion.
Nvidia CFO Colette Kress said during the analyst call that the company is planning to increase production of its Blackwell AI chips beginning in the fourth quarter and continuing through fiscal 2026. Kress said Nvidia expects several billion dollars in Blackwell revenue in the fourth quarter, with shipments of its Hopper graphics processor unit, or GPU, expected to increase in the second half of fiscal 2025.
In an interview with Bloomberg Television, Huang said the company will "have a great next year as well."
Through the year's first six months, Nvidia's stock price soared nearly 150%. At that point, it was trading at a little more than 100 times the company's earnings over the prior 12 months. That's much more expensive than it's been historically and than the S&P 500 in general. That's why analysts warn of a selloff if Wall Street sees any indication that AI demand is waning.
Dan Ives, an analyst with Wedbush Securities, called the earnings part of a "historic, meteoric rise from Nvidia and the godfather of AI, Jensen (Huang)." Investors, Ives added, are picking apart "robust numbers" and trying to find holes in them. Although Nvidia said it estimates about $32.5 billion in revenue in the third fiscal quarter, some analysts expected a slightly higher figure, he said.
"I view it as kind of like splitting hairs," Ives said. The demand for AI technology is only accelerating, he added, echoing Huang's previous statements that the world is in the midst of the next industrial revolution.
"This is the most watched earnings — not just in tech, but in the market, in many years," he said. "Investors will initially overreact to any sort of short-lived weakness. But I believe this actually put more fuel into the tank of the bull market."