As chip giant Nvidia’s latest results fall short of lofty expectations, investors and industry watchers ponder the future of AI-driven stocks
Despite reporting strong earnings, Nvidia – the chip giant that has been at the forefront of the artificial intelligence boom – shares dropped 4.5% in premarket trading on Thursday, potentially wiping out US$150bn in market value. Could this represent shifting sands for the AI world?
This downturn is in stark contrast to the company’s meteoric rise earlier this year. In May 2024, Nvidia briefly surpassed Microsoft to become the world’s most valuable company, with its market capitalisation soaring past US$3tn. The firm’s dominance in high-end chips for AI applications had fuelled this unprecedented growth, with daily trading volumes averaging US$50bn.
However, the latest earnings report suggests that even the darling of the AI revolution is not immune to market pressures. Nvidia’s third-quarter gross margin forecast, which could potentially miss market estimates, coupled with revenue projections that were largely in line with expectations, has led to a recalibration of investor sentiment.
The impact of Nvidia’s forecast extends beyond its own stock. Other AI-linked chip manufacturers, including Broadcom, Advanced Micro Devices and Micron, saw their shares decline by as much as 2%, according to Reuters.
Analysts suggest that the market reaction stems from the sky-high expectations investors had pinned on Nvidia. This sentiment reflects a broader trend in the tech sector, where companies that fail to exceed increasingly lofty forecasts face swift market punishment. Microsoft and Alphabet, both major players in the AI race, experienced similar downturns following their recent earnings reports, despite showing strong growth.
Nvidia’s continued innovation and growth
The cooling enthusiasm for AI stocks comes at a critical point for the technology industry. With September historically being a volatile month for markets, Nvidia’s performance could set the tone for investor sentiment in the coming weeks.
Nvidia founder and CEO Jensen Huang
However despite the current headwinds, Nvidia’s long-term outlook remains robust. The company’s revenue forecast of US$32.5bn for the fiscal third quarter still implies an impressive 80% growth from the year-ago period. Moreover, Nvidia continues to innovate, with its recent introduction of its Blackwell AI platform aimed at advancing breakthroughs in data processing, engineering simulation, and quantum computing.
