US tech stocks are currently experiencing a downturn despite Nvidia, the chipmaker that has been driving the artificial intelligence (AI) led stock market boom, reporting stronger than expected earnings. Nvidia has been a standout performer in the US markets, with shares up an impressive 150% this year alone. The company recently reported second quarter revenue of just over $30 billion, which is more than double the amount achieved in the same period a year ago. This exceptional performance has made Nvidia a favorite among investors.
Despite the positive earnings report, Nvidia’s crucial forecast for sales in the current quarter, $32.5 billion, only slightly beat estimates. This may have been the catalyst for its shares suffering a rare decline in value following the earnings update. In after-hours trading, Nvidia’s shares fell by up to 6.8%, adding to losses of more than 2% during the main trading hours on Wednesday. Some major customers, including Meta and Amazon, were also affected, with their shares dropping by around 1%.
Nvidia, which holds 80% of the AI chip market, is closely watched for signals on the overall health of the AI investment opportunity. Confidence in the market wavered at the start of August when US data raised fears of a recession, leading to a global stock sell-off. For Nvidia, a recession, while unlikely, would pose a risk to demand for AI and its products. Despite this, Nvidia’s success has earned it a market value of $3.2 trillion, with shares up by 3,000% since 2019.
The rapid rise in Nvidia’s stock price has raised concerns about a potential bubble burst similar to the dot-com bubble of two decades ago. Tech stocks, including Nvidia, have outperformed the market but are seen as vulnerable to shocks based on their value versus earnings. Recent worries over a design-led delay in the launch of Nvidia’s upcoming Blackwell chips have contributed to price fluctuations. However, the company’s existing Hopper chips have been seen as filling any short-term gaps.
Nvidia reassured investors by stating that it had already shipped Blackwell pilots to customers and partners, with sales expected to increase towards the end of the year. Traders in the US equity options market had anticipated a significant swing in Nvidia’s shares following the earnings report, but the actual decline may reflect concerns about the company’s valuation. Analysts have noted that while Nvidia continues to exceed expectations, the market now expects even greater performance, which may have led to the slight disappointment in the recent update.
In conclusion, Nvidia’s recent earnings report, while strong, has not been enough to keep the market satisfied, leading to a decline in its stock value. The company’s performance will continue to be closely monitored as it navigates challenges and opportunities in the rapidly evolving tech industry.