Nvidia’s share price experienced a notable decline as investors reacted to signs of decelerating growth and production challenges, despite the company reporting a significant increase in second-quarter revenues.
The Silicon Valley-based chip designer reported a stunning 122% rise in second-quarter revenues compared to the same period last year, with earnings reaching $30bn (£23bn), surpassing analyst predictions of $28.7bn. Despite this remarkable growth, investor confidence wavered due to concerns regarding the future prospects of Nvidia’s next-generation AI chips, codenamed Blackwell.
In pre-market trading, Nvidia shares fell by as much as 7%, eventually recovering slightly to a 3% loss. Currently, Nvidia holds the position as the third most valuable company globally, with a market valuation of $3.1tn. However, the announcement of a several-month delay in the delivery of its Blackwell chips, which are crucial for training large language models, has shaken investor confidence. Nvidia’s CEO, Jensen Huang, previously highlighted the potential revenue generation from Blackwell within the year.
Simon French, the chief economist at Panmure Liberum, explained, “There were just some signs around the edges in numbers that that rate of growth was trying to slow.” He further added that the current AI chip, Hopper, was performing well, but the production delays of the upcoming Blackwell chip have contributed to the drop in investor confidence.
The company did not specify the extent of the delay but assured that manufacturing issues had been addressed by TSMC, the Taiwanese semiconductor manufacturer responsible for producing Nvidia’s most advanced chips. Early samples of the Blackwell chips are now being shipped to a limited number of customers. The market’s reaction was also reflected in the S&P 500 index, where Nvidia’s stock, representing about 6% of the index’s total value, significantly influenced its performance this year with a 160% rise over the past twelve months.
Market analyst Matt Britzman from Hargreaves Lansdown pointed out that investor expectations were exceptionally high. He commented, “It’s less about just beating estimates now, markets expect them to be shattered and it’s the scale of the beat that looks to have disappointed a touch.” While the theoretical impact of artificial intelligence has been widely embraced, the practical applications are yet to be fully realised, as noted by French.
Despite the market reaction, Britzman advised caution, noting that investors often overemphasise the significance of a single set of quarterly results. He emphasised that major players like Microsoft, Tesla, and Meta are operating on long-term strategies, and investors would benefit from adopting a similar perspective. Britzman remarked, “The question of return on investment, which many AI sceptics focus on, simply isn’t the main consideration for Nvidia’s biggest customers at this stage. This cycle won’t follow a straight line, but the ‘build it and they will come’ approach still aligns with Nvidia’s strategy.”
Nvidia’s recent performance highlights the challenges the company faces in meeting high investor expectations amid production delays. While short-term market reactions reflect concerns, a long-term perspective may offer a clearer understanding of Nvidia’s potential in the evolving AI landscape.
