Even though Nvidia shattered Wall Street’s profit expectations, the AI chip darling’s stock opened in the red on Thursday. This represents a painful new reality for the world’s most valuable company.
The semiconductor manufacturer’s quarterly results exceeded analysts’ expectations for both sales and final profit. However, this number did not translate into a significant rise in stock prices. The stock was trading at $186.76 around midday Thursday, down 5%.
AI hype has given way to hesitancy and fatigue on Wall Street, spilling over into stock prices for top chipmakers.
Nvidia’s earnings used to be a big market mover. As recently as May 2023, Nvidia stock soared more than 24% in the business day following an earnings release. Shares soared 16% following the release of fiscal 2024 fourth-quarter results, and 10% on the following quarter’s earnings.
The chipmaker’s dominant position in the AI hardware trade is still greeted with much fanfare today, with Wall Street analysts singing its praises. But the company’s earnings no longer appear to be moving the stock price needle.
“There is no such thing as ‘good enough’ anymore,” Futurum CEO and principal analyst Daniel Newman told Business Insider.
That lackluster performance isn’t necessarily the result of Wall Street’s weakness for Nvidia, but it does highlight the harsh reality for major AI stocks, where earnings metrics continue to rise amid signs of AI fatigue.
This is especially true as concerns about AI weigh heavily across the technology industry. After Anthropic’s Claude update, AI hype turned to panic and Citrini stoked fears about a potential dystopian AI future.
“People love NVIDIA’s margins, but they don’t believe that it’s sustainable. People love the margins, but they don’t believe that this capex number is sustainable. So this is like, we love it, but we don’t believe in it,” Newman said.
However, some remain optimistic, unable to believe that the market’s reaction to the latest results has been so negative.
Paul Meeks, head of technology research at Freedom Capital Markets, said Nvidia stock is “unfairly” undervalued given the beat-and-raise quarter. The analyst argued that NVIDIA should trade at a premium compared to AMD and the broader market.
“What struck me is that AMD, which has a data center business 11 times smaller than NVIDIA, with lower margins and slower revenue growth, is trading at a higher multiple than NVDA. Moreover, with today’s higher market expectations, NVDA is trading at only a modest premium to this year’s earnings over the S&P 500,” Meeks wrote in response to the decline in NVIDIA stock.
Analysts at Wolfe Research consider Nvidia a top pick.
“Despite the net, stock price reaction, this is an unexpectedly strong report and does nothing to change our bullish thesis.”
The company’s target beats consensus estimates, but the company notes it expects Wall Street’s average forecast to rise over time.
