Nvidia Results Romp, So How Come Its Stock Slipped?
Market-wide forces are impacting the high-flying shares, which have led the S&P 500 all year.
Nvidia Corp.’s seemingly relentless march north stumbled despite strong third-quarter earnings and revenue reported Tuesday. The chipmaker, whose stock had more than tripled this year, fell almost 0.9% during Tuesday trading and around the same amount after the close.
Odds are, however, that Nvidia’s Tuesday decline is a hiccup stemming from market-wide forces and that the celebrated tech titan (market cap: $1.2 trillion) will resume its ascent, powered by the exuberance around artificial intelligence. Nvidia’s astonishing rally largely stems from its dominance in semiconductors used in AI, 2023’s hottest investment theme.
That is important because Nvidia has been the top stock among the Magnificent Seven, the group of companies that has led the market’s charge in 2023. This year through Tuesday, Nvidia has soared 248%, with Facebook parent Meta Platforms in second place at 170% and Apple the laggard at 52%. The S&P 500 is up 16.8% for the period.
The market’s catalyst has been tech firm OpenAI’s June announcement of its breakthrough of a machine-learning algorithm designed to generate human-like responses. Nvidia supplies the bulk of OpenAI’s chips.
Note that Nvidia had a similar short-lived downward blip in August after it released robust earnings and revenue news. That small slide, which lasted only two days, came at the start of a three-month decline that interrupted this year’s bull market.
This latest Nvidia dip likely is due to qualms that the market as a whole, and tech in particular, may be overbought. On Monday, before the Nvidia report, LPL Financial declared in an analyst commentary that such worries are temporary and the S&P 500 will “keep working its way higher.”
To LPL, “the market appears to be taking a rest” leading up to “the Thanksgiving holiday, the historical pattern over the last five years.” November, the firm declared, has been the best month for equities since 1950.
The Q3 Nvidia performance, for the quarter ending in October, smashed Wall Street analysts’ projections (as published by FactSet). Quarterly revenue was $18.1 billion, and analysts expected $16.2 billion. Net income was $9.24 billion, and Wall Street anticipated $7.34 billion. GAAP earnings were $3.71 per share, compared with expectations of $3.03.
Of course, no stock stays popular forever. But there is a lot of sentiment that Nvidia can hurtle still higher in the near future, at least. As Christopher Robb, an analyst at Seeking Alpha wrote, “Similar to big wave surfing, the rules of investing in stocks with excessive valuation are different than normal investing.”