Nvidia Beats Revenue and Profit Expectations, But Was It Enough?

Not Apple. Not Microsoft. Not even IBM, back in the day. None of their quarterly earnings calls became a nationally recognized Day of Financial Observance. Yesterday was Nvidia Day: The AI giant handily beat revenue and profit forecasts, and issued third-quarter guidance that beat expectations. For some buy-side analysts, that still didn’t meet their greatest expectations.

A Stock That Can Move Markets

Nvidia controls between 70% and 95% of the AI chips market, according to Mizuho Securities estimates. That pole position at the first wave of explosive growth in the AI market — PwC estimates that in 2030, AI will boost GDP in China by 26% and in North America by 14.5%, a total equivalent of $10.7 trillion — has led Nvidia to staggering gross margins, 78% in the second quarter.

In a sign of Nvidia’s significance to investors, the S&P 500 and Nasdaq were mostly quiet Wednesday, down 0.6% and 1%, respectively, as traders awaited the news. Given Nvidia’s shares were up 160% year-to-date, accounting for about 25% of the S&P 500’s 18% gain in the same period, it makes sense. Bespoke Investment Group wrote that the “earnings report has become the world’s most important financial news event. Federal Reserve officials must be getting nervous.” The stakes were so high that, even as Nvidia beat expectations when it did report, that might not be enough:

• In the three months through July, revenue more than doubled to $30 billion from a year earlier, while profit more than doubled to $16.6 billion. (FactSet consensus for revenue was $28.7 billion.) Data center revenue rocketed over 150% to $26.3 billion, a billion dollars more than expectations, and gross margins remained high at 75%.
• Nvidia’s stock was down more than 2% by market close Wednesday, before reporting after the bell, and fell nearly 9% in the extended session. That may be because of just how bullish some buy-side analysts are — projections for Nvidia’s guidance ranged as high as $2 billion over the consensus, but the company said it expects fiscal third-quarter revenue of $32.5 billion, as opposed to analysts’ consensus of $31.7 billion.

Swing for the Fences: Traders on the US equity options market expected Nvidia shares to swing nearly 10% in a record $300 billion earnings move after earnings dropped. Thursday will test that forecast — the company has averaged an 8.1% swing after recent earnings, Bespoke Investment Group said.