Nvidia’s AI ambitions are sky-high, but are the cracks starting to show? 📉

Nvidia reported adjusted earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More of $0.68 on revenues of $30.04 billion, exceeding expectations of $0.64 per share on $28.70 billion in revenue. The company projects $32.50 billion in current-quarter revenue, reflecting 80% year-over-year growth and surpassing analyst estimates of $31.70 billion. Nvidia’s data center business now contributes 88% of its total revenue, with significant reliance on its next-generation AI chip, Blackwell. Nvidia expanded its stock buyback program by $50 billion, increasing the total to $57.5 billion. Despite strong financial results and optimism from management, Nvidia shares fell 7% after hours as investors questioned the sustainability of the AI growth cycle and were concerned about decelerating growth rates and slightly lower-than-expected guidance.

Earnings Beat and Revenue Growth

NVIDIA reported adjusted earnings per share of $0.68 on revenues of $30.04 billion, topping the anticipated $0.64 per share and $28.70 billion in revenue. Looking ahead, the company projects current-quarter revenue to reach $32.50 billion, which represents an 80% year-over-year (YoY) growth, exceeding the $31.70 billion forecasted by analysts.

While these figures are robust, they mark a slowing from the company’s recent trend of triple-digit percentage growth. After three consecutive quarters of 200% YoY growth, NVIDIA is now facing more challenging comparisons, with sequential quarter-over-quarter (QoQ) growth also decelerating. This shift underscores the company’s current position and the evolving expectations of the market.

The Central Role of AI and Blackwell Chips

NVIDIA’s data center business has become a pivotal component of its revenue stream, accounting for 88% of total revenues. This dominance underscores the importance of NVIDIA’s next-generation AI chip, Blackwell. CFO Colette Kress indicated that the company expects to generate several billions of dollars in revenue from Blackwell, and CEO Jensen Huang confirmed the chip’s readiness, noting, “The change to the mask is complete. There were no functional changes necessary.”

This advancement in AI technology positions NVIDIA well within the rapidly growing AI sector. However, the broader market is grappling with questions about the sustainability of the current AI hype cycle and when these technological advancements will translate into substantial profits for companies like NVIDIA.

Expanding Buyback Program and Market Skepticism

Adding to its financial maneuvers, NVIDIA announced an expansion of its stock buyback program by $50 billion, supplementing the existing $7.50 billion authorization. This move reflects management’s confidence in the company’s financial health and commitment to returning value to shareholders. Despite these strong signals from the company, investors are increasingly questioning the sustainability of NVIDIA’s rapid ascent, especially given the heightened expectations surrounding AI-related growth.

Stock Performance and Market Reaction

Despite the strong headline numbers, NVIDIA’s shares fell about 7% after the earnings release. The stock’s reaction can be attributed to the sky-high expectations that had built up over the past year, during which NVIDIA’s stock surged by over 150%. Even with a 122% increase in revenue YoY, the magnitude of NVIDIA’s earnings surprise was less than in previous quarters, leading to disappointment among investors who were hoping for even more substantial outperformance.

Concerns About Growth Deceleration and Margins

NVIDIA’s guidance for the upcoming quarter was another focal point for investors. While the company projected revenues of approximately $32.5 billion, slightly above analyst expectations, some investors had hoped for even more optimistic figures, in the range of $33 billion to $34 billion. This discrepancy between NVIDIA’s guidance and the more bullish investor forecasts contributed to the stock’s post-earnings decline.

Additionally, concerns about the deceleration of NVIDIA’s growth have surfaced. Although NVIDIA’s growth rate remains strong, it is decelerating from the explosive triple-digit increases seen in prior periods. This slowdown, along with a slight dip in NVIDIA’s gross margin—from 78.4% in the previous quarter to 75.1%—has raised questions among investors about the company’s ability to maintain its rapid pace of expansion.

Insights:

Nvidia’s reliance on its data center and AI chip sales is increasing.
The stock buyback expansion reflects confidence but may not offset growth concerns.
Investor expectations are exceptionally high, contributing to market volatility.

The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and... More

Nvidia continues to deliver strong revenue growth driven primarily by its data center business, now 88% of total revenues, and next-generation AI chip, Blackwell. Despite impressive results and expanded buybacks, investor expectations remain elevated, causing market sensitivity to any signs of growth deceleration or guidance shortfalls.

The Guerilla Stock Trading Action Plan

Monitor Nvidia’s data center and AI chip performance closely, as these areas are pivotal.
Evaluate the potential impact of the $50 billion stock buyback program on stock valuation.
Consider market sentiment and investor expectations when making investment decisions in Nvidia, especially regarding sustainability of growth and AI developments.

Blind Spots

Blind Spot 1: Overdependence on Data Center and AI Chips

• Description: Nvidia’s heavy reliance on its data center and AI chips, especially the next-generation Blackwell, creates vulnerability. A downturn in demand, increased competition, or technical setbacks could significantly impact revenue.
• Remedy: Diversify product offerings and revenue streams by expanding into other markets like automotive, gaming, or software solutions. Investing in R&D for innovative products outside the data center sphere can also mitigate risks associated with overdependence.

Blind Spot 2: Unsustainable Growth Expectations

• Description: Investor expectations for Nvidia’s growth are extremely high, and any signs of slowing down can lead to sharp market reactions, as seen with recent share declines. This mismatch between performance and expectations can cause volatility and reduce investor confidence.
• Remedy: Manage market expectations through clear and realistic communication. Nvidia should provide transparent guidance, emphasizing long-term strategies over short-term gains. Educating investors on the cyclical nature of tech and AI advancements could also align expectations more closely with actual performance.

Blind Spot 3: Uncertain AI Revenue Contribution Timeline

• Description: While AI is a major growth driver for Nvidia, the timeline for significant revenue contributions from AI technologies remains unclear. The hype surrounding AI may not translate into immediate, substantial profits, potentially leading to investor disillusionment.
• Remedy: Develop a clear roadmap for AI technology integration with expected timelines for revenue impact. Nvidia should also explore partnerships and collaborations to accelerate AI adoption and monetization. Providing periodic updates on AI projects’ progress can help maintain investor confidence in the long-term potential of AI contributions.

NVDA Technical Analysis (daily)

This chart shows Nvidia Corp (NVDA) on a daily timeframe, displaying various technical indicators including moving averages, volume, RSI, On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More, Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More, Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More, and MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More. Here’s the comprehensive technical analysis:

Trend Analysis:
The stock has been on an uptrend from March to mid-July, as indicated by the price action staying above the 50-day moving average (blue line). However, in the most recent period, the price has dipped below the 50-day moving average and is approaching the 200-day moving average (red line), suggesting potential weakening of the upward momentum. The latest candle shows a significant bearish move, with a large red candle indicating strong selling pressure.

Support and Resistance Levels:

• Support: Key support levels are around the 200-day moving average at approximately 88.92, which could act as a strong support given its historical significance in trends. There is also a minor support level around 110 based on past consolidation and price action in late May and early June.
• Resistance: The immediate resistance is around the 50-day moving average at 123.65. Above that, resistance levels are seen around 130-135, which was the peak in the previous rallies.

Volume Analysis:
The volume is relatively high on down days compared to up days, indicating stronger selling pressure. The On-Balance Volume (OBV) shows a flattening pattern, suggesting that the buying momentum is not strong enough to push the stock higher in the short term.

RSI:
The Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI) is at 47.52, which is in the neutral zone, indicating neither overbought nor oversold conditions. However, the RSI trend has been downwards, reflecting weakening buying strength.

Stochastic RSI:
The Stochastic RSI is at 0.419, showing a recent decline from higher levels, which suggests that the stock might continue to face downward pressure in the near term as it is not yet in oversold territory.

Chaikin Oscillator:
The Chaikin Oscillator is positive but declining, indicating that the accumulation distribution is weakening, reflecting a loss of buying interest.

MACD:
The MACD line (8.85) is above the signal line (6.31), with a positive histogram, suggesting a recent bullish crossover. However, this is in the context of the MACD having recently crossed below the zero line, so the positive crossover might indicate a temporary pause in the downtrend rather than a reversal.

Future Trend Indications:
The stock is showing signs of potential further downside in the short term due to breaking below the 50-day moving average and the large bearish candle. There could be a short-term bounce near the 200-day moving average or at the minor support of 110, but the overall trend is at risk of reversing from bullish to bearish if key support levels fail. The indicators suggest a cautious stance as the buying momentum has weakened and selling pressure is visible.

Time-Frame Signals:

• 3 Months: Cautious, potential for a bounce but watch for a break of support around 110.
• 6 Months: Bearish bias if it stays below the 50-day and 200-day moving averages; watch for the 88.92 support level.
• 12 Months: Neutral to bearish unless the stock can reclaim the 50-day moving average and show sustained buying interest.

Overall, the current chart suggests cautiousness with a downside bias in the short term, with critical support at the 200-day moving average and the potential for further declines if that support is breached.

NVDA Technical Analysis (weekly)

This chart of Nvidia Corp (NVDA) on the weekly timeframe includes key technical indicators such as an Anchored Volume Weighted Average Price (VWAP), and exponential moving averages (EMAs) for 40 and 150 periods. Here’s the comprehensive technical analysis:

Trend Analysis:
The overall trend for NVDA is bullish, as evidenced by the price consistently trading above the 40-week EMA (blue line) and the VWAP (orange line). There was a strong rally starting from late 2022 through mid-2024, with higher highs and higher lows confirming the uptrend. Recently, the price pulled back slightly but remains above key moving averages, suggesting that the long-term uptrend is still intact. The Anchored VWAP at 73.60 serves as a historical volume-weighted average support level that is well below current prices, indicating strong past buying interest.

Support and Resistance Levels:

• Support: Immediate support lies around the 40-week EMA at 99.14. Stronger support can be seen at 73.60, with the Anchored VWAP. Another critical support level is the 150-week EMA at 56.38, which has held historically as a long-term support.
• Resistance: The key resistance level is near the recent high at 130-135. If the price breaks above this level, it could target new highs beyond 140.

Volume Analysis:
The volume has generally been declining during the recent pullback, suggesting a lack of strong selling pressure. The On-Balance Volume (OBV) line remains in an uptrend, which indicates continued accumulation despite the recent price volatility. This supports the idea that the uptrend might resume as there is no significant distribution phase observed.

Future Trend Indications:
The overall trend remains bullish, supported by long-term moving averages and volume indicators. As long as the price stays above the 40-week EMA, the stock is likely to maintain its uptrend. A break below the VWAP at 73.60 could signal a potential trend change or a deeper correction.

Time-Frame Signals:

• 1 Year: Bullish with potential for continued uptrend as long as the price remains above the 40-week EMA and doesn’t breach key support at 99.14.
• 2 Years: Moderately bullish, with an expectation for further gains but watch for any breakdowns below the 80-week EMA at 73.60 which could signal a shift to a longer-term consolidation or correction.
• 3 Years: Bullish outlook if the price maintains above the 150-week EMA and continues to form higher highs and higher lows. However, a sustained move below 73.60 would indicate caution and possible trend reversal.

This chart indicates that while the recent trend is positive, ongoing vigilance is necessary around key support levels. The price is likely to continue its uptrend barring any significant breaches of the support levels mentioned.

Past performance is not an indication of future results and this analysis should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

NVIDIA’s recent earnings highlight the company’s ongoing success in capitalizing on the AI boom and its dominant position in the data center market. However, the market’s reaction underscores the challenges of managing sky-high expectations and the natural deceleration that comes with a maturing growth trajectory. As NVIDIA continues to innovate with products like the Blackwell chip and expands its buyback program, the focus will remain on how it navigates these challenges and sustains its leadership in a rapidly evolving industry.

Frequently Asked Questions

1. What were Nvidia’s earnings per share and revenue for the latest quarter?

Nvidia reported adjusted earnings per share of $0.68 on revenues of $30.04 billion, which topped the expected $0.64 and $28.70 billion.

2. What is Nvidia’s revenue guidance for the current quarter?

Nvidia is expecting $32.50 billion in current-quarter revenue, representing 80% year-over-year growth, exceeding the $31.70 billion anticipated by analysts.

3. How has Nvidia’s growth trend changed recently?

After three straight periods of 200% year-over-year growth, Nvidia’s sequential (quarter-over-quarter) growth has started to slow, indicating that comparisons are becoming more challenging.

4. What percentage of Nvidia’s total revenue is generated by its data center business?

Nvidia’s data center business accounts for 88% of its total revenues.

5. What is the significance of Nvidia’s next-generation AI chip, Blackwell?

Blackwell is critical for Nvidia’s future growth, with the company expecting to generate several billions of dollars in revenue from this next-generation AI chip.

6. How much did Nvidia increase its buyback program by?

Nvidia increased the size of its buyback program by $50 billion, adding to the current authorization of $7.50 billion.

7. Why did Nvidia shares fall after the latest earnings report?

Despite strong earnings, Nvidia shares fell about 7% after the bell due to investor concerns about the sustainability of AI hype and growth expectations not being met.

8. How much has Nvidia’s stock increased this year?

Nvidia’s stock has risen over 150% this year, reflecting significant growth and high investor expectations.

9. What concerns do investors have regarding Nvidia’s future growth?

Investors are concerned about the sustainability of Nvidia’s rapid growth, as the company’s revenue projections were slightly below the highest investor expectations.

10. How has Nvidia’s gross margin changed recently?

Nvidia’s gross marginGross margin is a critical financial metric that plays a pivotal role in evaluating a company's financial health and profitability. It is a percentage that indicates how efficientl... More showed a slight sequential decline from 78.4% to 75.1%, which contributed to investor concerns.

11. What are the potential risks associated with Nvidia’s reliance on AI and data center products?

Nvidia’s heavy reliance on data center and AI chips, especially the next-generation Blackwell, makes it vulnerable to downturns in demand, increased competition, or technical setbacks.

12. What steps can Nvidia take to mitigate its growth concerns and investor expectations?

Nvidia can manage expectations through clear communication, diversify its product offerings, and provide a transparent roadmap for AI technology integration to align investor expectations with performance.