Nvidia, the $3 trillion chipmaker, disappointed investors with its second-quarter earnings report for fiscal year 2025, causing its stock to drop and slightly weighing on the tech-heavy Nasdaq Composite Index. The stock fell 6 percent during the August 29 trading session, dipping below $118. While the stock is still up 144 percent year-to-date, some market watchers believe that cracks might be starting to appear at Nvidia.
Investors were particularly focused on Nvidia’s guidance beat, concerns about margin falling short of expectations in the next quarter, and updates on a next-generation AI chip. The company reported a revenue increase of 122 percent year over year in the July quarter, totaling over $30 billion. This marked the fourth consecutive quarter of triple-digit revenue growth. Nvidia also saw solid revenue gains from its data center division and gaming business.
However, investors were taken aback when Nvidia projected gross margins in the mid-70 percent range for the full year, which fell below the consensus estimate of 76.4 percent. Additionally, there was a delay in developing Nvidia’s next-generation Blackwell AI chip due to a design flaw, which could impact demand in the third quarter.
Nancy Tengler, CEO and CIO of Laffer Tengler Investments, commented on the market’s reaction, stating, “The market didn’t like guidance and production issues with Blackwell, though the company beat on pretty much every metric. It was the guidance that got to investors—higher than estimates but below the high end.”
Despite the concerns, Nvidia’s overall earnings indicate that the company is performing well and beating expectations. John Belton, a portfolio manager at Gabelli Funds, described it as a “solid ‘thesis validation’ quarter” and stated that earnings expectations are moving higher. He also noted that Nvidia potentially becoming “boring” could be a healthy thing for the stock and the stock market overall.
Looking ahead, some question whether Nvidia’s upside potential is limited after reaching a $3 trillion market cap this year. However, Dan Ives, a Wall Street equities analyst, believes that Nvidia’s story is just getting started, comparing the company and CEO Jensen Huang to LeBron James in high school basketball.
Amidst the AI-fueled stock market rally, there have been discussions about the possibility of another dot-com bubble. In the late 1990s, the dot-com boom led to a significant increase in share prices of internet services and technology companies, but many of these companies failed to generate profits. The bubble burst, resulting in a crash in the Nasdaq. Some have drawn parallels between that era and the current market, with companies using AI in their earnings reports to generate hype. The concentration of mega-cap stocks has also played a role in the market’s performance.
However, experts point out that there are differences between then and now. The volatility index, which measures market volatility, has remained relatively stable in 2024. Interest rates are also lower compared to the dot-com bubble burst. While there are similarities, it remains to be seen whether history will repeat itself.
In conclusion, while Nvidia’s earnings report had some disappointing aspects, the company continues to perform well overall. The market’s reaction raises questions about the stock’s potential, but there are differing opinions on its future. The ongoing AI revolution and Nvidia’s role in it suggest that there may still be room for growth. As for concerns about another dot-com bubble, experts point out both similarities and differences, indicating that the current market environment may not be a replica of the past.
