Nvidia’s stock began this morning with a drop of over 4%, building on the initial 2.1% decline that followed its Q2 results yesterday. It bounced back a little soon after but remains in the red.
This may seem a strange market reaction to results that beat consensus expectations on revenues, revenue outlook, and profits—and that came accompanied by an extra $50 billion share buyback—but it seems some analysts weren’t expecting the law of large numbers to kick in just yet. Nvidia reported more than 200% revenue growth for the previous three quarters, and that pace couldn’t continue forever.
“The size of the beat this time was much smaller than we’ve been seeing,” said Carson Group market strategist Ryan Detrick, as quoted by Reuters. “Even future guidance was raised, but again not by the tune from previous quarters. This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season.”
Swissquote Bank’s Ipek Ozkardeskaya also said Nvidia’s “shiny results were clouded” by its confirmation of a reported design flaw in Blackwell, the next generation of Nvidia’s top-end AI chips. The reports earlier this month said the flaw meant Blackwell would be delayed by three months or more, which could have hit customers’ plans to be running large clusters of the things in the first quarter of next year.
But in the event, the necessary design change was more about increasing production yields than altering Blackwell’s architecture. It’s fixed now, and Nvidia CFO Collette Kress said “several billion dollars in Blackwell” were on track to ship in Q4. Nvidia also still expects shipments of its current Hopper generation to keep growing.
So in short, there’s no obvious huge worry about Nvidia, other than the fact that there’s a natural limit to any company’s growth. “The competition is not even close to [taking] market share from Nvidia and thus the investment case still looks solid,” said Saxo Bank chief investment strategist Peter Garnry.
And if Nvidia’s case is solid, does that imply the same for the wider AI sector, for which Nvidia is often seen as a bellwether? Perhaps. Big Tech’s AI spending is clearly continuing apace, but there are reasons for concern.
The Metas and Microsofts of this world still need to demonstrate that all their AI investment is really paying off. For that to happen, their customers must demonstrate sustainable enthusiasm, and a willingness to pay, for the benefits of generative AI. That jury remains out.
It is also, as always, worth keeping an eye on regulatory developments that could hit AI. Meta and Apple are both refusing to release their AIs in Europe, for various regulatory reasons. California’s State Assembly also passed a significant AI safety bill yesterday—its proponents say it’s a light-touch first step in AI regulation, but opponents have warned of stifling innovation. If the bill wins Gov. Gavin Newsom’s signature and the latter camp is correct, that could lead to some kind of reduction in demand for Nvidia’s wares. Maybe.
For all the feverish anticipation that existed for yesterday’s Nvidia results—traders thought they would be looking at a record 11% swing in its shares—nothing much has really changed. But, markets being the sentimental beasts that they are, the realization that “number go up” can’t last forever has hit not only Nvidia but also other chip firms like SK Hynix and Samsung Electronics, whose shares fell by 5.4% and 3.1% respectively in South Korea today.
More news below.
David Meyer
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NEWSWORTHY
Durov latest. Telegram CEO Pavel Durov was yesterday placed under formal investigation over a variety of potential charges relating to crime on the social network slash messaging app. He has paid $5.5 million in bail and is not allowed to leave France. AFP reports that Russia continues to claim the case is politically motivated. There’s no evidence of that and claims that Durov is a free speech martyr remain equally dubious. But one thing’s for sure: Detaining a tech CEO for the stuff that happens on their platform is a game changer. PS: Forbes reports that Durov is also a suspect in a Swiss case brought about by a former partner, who alleges that he was physically violent with one of their children.
Yelp sues Google. The business-review site Yelp has finally sued Google in the U.S., after many years of lobbying competition allegations at the Big Tech firm. In contrast to the seismic ruling earlier this month that found Google to have an illegal monopoly in web search and search text ads, this case is about Google’s position in local search. As The Verge explains, Yelp contends that Google steers search users to its own local search vertical to suppress rivals in that space (such as Yelp).
X suspension threat. Elon Musk’s X has been ordered to appoint a legal representative in Brazil by this evening or face suspension in the country, the New York Times reports. The order came from Brazilian Supreme Court Justice Alexandre de Moraes, who has recently become Musk’s archenemy. Musk shuttered its Brazilian operations earlier this month in protest at Moraes’s insistence that it block certain far-right accounts. However, X had intended to keep serving the lucrative market, which may now become impossible if it doesn’t back down.
SIGNIFICANT FIGURES
$100+ billion
—The valuation at which OpenAI is negotiating a new funding round, according to the Wall Street Journal, which says Thrive Capital will lead the round with a fresh investment of around $1 billion. OpenAI’s last valuation, late last year, was $86 billion.
IN CASE YOU MISSED IT
Nearly half of Nvidia’s revenue comes from just four mystery whales each buying $3 billion-plus, by Christiaan Hetzner
Why Telegram CEO Pavel Durov stands apart from other tech executives, by Paolo Confino
CrowdStrike CEO celebrates ‘resilient’ earnings after causing a global outage that some feared would kill his business, by Jenn Brice
Tesla scrubs Elon Musk’s original brainchild manifesto from its website, by Sascha Rogelberg
TikTok sued by U.K. content moderator over a toxic workplace culture, allegations of discrimination and ‘impossible targets’, by Bloomberg
Warren Buffett gets early birthday present as Berkshire Hathaway joins $1 trillion club, by Greg McKenna
BEFORE YOU GO
Apple’s AI iPhone optimism. Apple has ordered more components for its upcoming, AI-tastic iPhone than it did for last year’s iPhone 15, Nikkei Asia reports. The publication says suppliers are seeing orders that are 10%-or-more greater than in 2023, though Apple does often order high at first before moderating its order once it sees how the model is selling.
