Analysts Watch Market Reaction After Nvidia’s Earnings Report

The logo of NVIDIA at its corporate headquarters in Santa Clara, Calif., in May 2022. Courtesy of NVIDIA/Handout via Reuters

Nvidia failed to satisfy investors’ lofty expectations for the $3 trillion chipmaker’s fiscal year 2025 second-quarter earnings report, sending the stock lower and slightly weighing on the tech-heavy Nasdaq Composite Index.

Company shares tumbled 6 percent during the Aug. 29 trading session, sliding below $118. The Nasdaq was little changed, dipping 0.23 percent. Both moderately recovered in the trading session on Friday.

While the stock is still up 144 percent year-to-date, market watchers who spoke with The Epoch Times say that traders might think tiny cracks are beginning to emerge at Nvidia.

Armchair and institutional investors paid close attention to Nvidia’s earnings report after the midweek closing bell. The company is at the center of the enormous artificial intelligence boom that has swept Wall Street over the last two years.

Traders were focused on the tech titan’s guidance beat, the possibility of margin falling short of expectations in the next quarter, and updates on a next-generation AI chip.

Revenue soared 122 percent year over year in the July quarter, totaling more than $30 billion. This was the fourth consecutive quarter of triple-digit revenue growth. The firm also reported solid revenue gains from multiple sources, including its data center division and gaming business.

Third-quarter revenue guidance beat the market—$32.5 billion compared to the estimate of $31.8 billion—but it was the smallest in the last several quarters.

Net income doubled to more than $16.6 billion, or 67 cents per share.

Investors were taken aback after the company projected that gross margins would be in the mid-70 percent range for the full year. The consensus estimate suggested a full-year margin of 76.4 percent.

The other chief concern was the delay in developing Nvidia’s next-generation Blackwell AI chip due to a design flaw. Officials expect to launch Nvidia’s Blackwell platform in the fourth quarter, which might upend demand in the third quarter.

“The market didn’t like guidance and production issues with Blackwell, though the company beat on pretty much every metric,” said Nancy Tengler, CEO and CIO of Laffer Tengler Investments. “It was the guidance that got to investors—higher than estimates but below the high end.”

While Nvidia’s earnings indicate that the overall corporation continues to fire on all cylinders and beat estimates, the company might be unable to keep up with Wall Street’s outsized expectations, which might be “a healthy thing for the stock,” says John Belton, the portfolio manager at Gabelli Funds.

“This was a solid ’thesis validation' quarter. Everything, for the most part, is on track. Earnings expectations are moving higher,” said Belton in a note. “We are not going to be bothered by the idea that beating expectations is somehow boring. That said, the thought of Nvidia becoming boring would probably be a healthy thing for the stock and for the stock market more broadly.”

But is the semiconductor behemoth’s upside potential limited after registering a $3 trillion market cap this year?

Nvidia's CEO Jensen Huang delivers his keystone speech ahead of Computex 2024 in Taipei on June 2, 2024. Sam Yeh/AFP via Getty Images

Dan Ives, a Wall Street equities analyst, says the AI giant’s story is just getting started.

“Nvidia and [CEO Jensen] Huang are currently like LeBron in High School basketball in our view given this AI Revolution just starting,” he said on social media platform X.

Shades of the Dot Com Bubble

Amid the AI-fueled stock market rally, there have been echoes of the dot com bubble.

In the late 1990s, the dot com boom helped create a stock market bubble, leading to a significant and fast increase in share prices of internet services and technology companies through speculation.

The problem was that these businesses—sustained through an active equity market that extended them cheap capital—possessed high valuations but failed to generate profits. After the funding dried up, driven by then-Federal Reserve Chair Alan Greenspan raising interest rates several times, these firms could not stay open without profits.

Between March 2000 and October 2022, the Nasdaq crashed by 77 percent.

Could the market be entrenched in another dot-com bubble all over again?

“This is not the internet bubble,” Tengler stated.

This has been a debate on Wall Street, with both sides highlighting similarities and differences.

Like organizations quickly adding “.com” in their names in the late 1990s, companies have been alluding to AI multiple times in their earnings reports to bolster investor hype about future earnings.

Another comparison is the size of the market concentration. The so-called Magnificent Seven mega-cap stocks—Apple, Microsoft, Amazon, Alphabet (Google), Meta Platforms (Facebook), Nvidia, and Tesla—have supported the solid market performance because they have weighed heavily on major stock indexes.

At the same time, there are several distinctions between then and now, experts say.

Outside of the three-day market crash in early August, the CBOE Volatility Index has flatlined for much of 2024. It is much lower than the VIX heading into the dot-com meltdown.

Interest rates were higher at or around the dot-com bubble burst. At its peak, the benchmark federal funds rate was 6.54 percent in July 2000. Today, it sits between 5.25 percent and 5.5 percent.

“No, today is not like 2000, but there are similarities. Is this time different, or will trees again fail to reach the sky?” wrote RIA Advisors CIO Lance Roberts in a June 2024 report. “Unfortunately, we won’t know for certain until we can look back through the lens of history.”