NVDA stock down after Nvidia earnings explained: Why did NVDA stock drop after Nvidia earnings beat estimates? Here’s why investors are worrying about long-term AI dominance outlook
Why Did Nvidia Stock (NVDA) Drop Despite Strong Earnings?
The chipmaker has become the world’s most valuable company thanks to explosive AI demand. The stock has risen nearly 49% in the past year, fueled by increased spending on powerful processors needed to train and run artificial intelligence systems. But shareholders now appear to be asking a tougher question: Can this pace continue?
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Is the AI Boom Slowing Down? Investors’ Concerns About Long-Term Growth
In a note written after the results, analysts at Hargreaves Lansdown said investors remain concerned about “whether the current wave of AI spending can sustain growth over the next few years and whether Nvidia will remain as dominant as AI transitions from training models to running everyday tasks,” Bloomberg reported.
Nvidia CEO Jensen Huang Defends AI Spending and Future Demand
Chief Executive Officer Jensen Huang disputed those concerns during the company’s earnings call. He argued that customers are already earning a return on the computing power they purchase, which should support continued investment.
“You need computing capacity, and that translates directly into growth, which translates directly into revenues,” Huang said, as quoted by Bloomberg. “I’m sure cash flows are increasing,” he said, as quoted by Bloomberg.
Chief Financial Officer Colette Kress touched on another major concern: supply. While he acknowledged it remains difficult to produce enough of Nvidia’s most advanced chips, he said the company has secured enough components to meet growing demand. Also read: More than 25 million attacks in what has been called the largest data breach in US history
Blackwell and Rubin Chips: Nvidia’s Next $500 Billion Opportunity
Nvidia’s current Blackwell series and its upcoming successor Rubin are expected to outperform previous sales forecasts. The company had previously said that these chips would generate $500 billion in revenue by the end of 2026. Kress added that inventory and supply commitments extend through calendar 2027.
Chinese Export Restrictions and 25% Tariff Impact on NVDA Shares
Still, uncertainty continues in China, the largest market for chips. The US government has issued licenses allowing Nvidia to ship a limited number of H200 processors here, but the company does not yet know whether Chinese authorities will approve the shipment. For now, Nvidia continues to exclude Chinese data center revenue from its forecasts. The chips must also pass US inspection before being shipped and face a 25% tariff when entering the US.
Nvidia Q1 Revenue Forecast Above Expectations But Failed to Excite Investors
Nvidia expects revenue of approximately $78 billion this quarter. That’s above analysts’ average estimate of $72.8 billion, though some estimates were closer to $80 billion. Revenue rose 73% to $68.1 billion in the fourth fiscal quarter ended Jan. 25, beating expectations of $65.9 billion. Profit came in at $1.62 per share, excluding certain items, above the $1.53 forecast. Adjusted gross margin also exceeded historical estimates, reaching 75.2%.
Data Center Revenue Strengthens Nvidia’s AI Dominance
Data center revenue, the engine behind Nvidia’s AI dominance, totaled $62.3 billion in the quarter, beating analysts’ expectations of $60.4 billion. Other episodes were less impressive. Gaming revenue was $3.73 billion, below estimates of $4.01 billion, while automotive sales reached $604 million, missing estimates of $643 million.
Memory Chip Shortage Puts Pressure on Nvidia’s Gaming Business
A broader industry issue is also affecting parts of the business: the memory chip shortage. These components are essential for everything from smartphones to supercomputers. The restrictions raised prices and limited shipments, particularly affecting Nvidia’s gaming division. It’s unclear whether the situation will ease enough to support growth in this segment this year, Kress said.
Meta’s Multibillion-Dollar Artificial Intelligence Deal Strengthens Nvidia and AMD
Meanwhile, Nvidia continues to deepen its relationships with major cloud and AI players. Earlier this month, Meta Platforms Inc. has agreed to deploy “millions” of Nvidia processors in the coming years. Nvidia’s main rival, Advanced Micro Devices Inc., said it had struck a similar long-term deal with Meta that would be worth tens of billions of dollars, according to a Bloomberg report.
FAQ
Why did Nvidia shares fall despite strong earnings?
While the numbers look great today, investors are worried about how long the AI boom will last.
How much did Nvidia’s revenue increase?
Fourth quarter revenue increased 73% year over year.
