Has Nvidia peaked? One might think so, given the chin-rubbing commentary following the muted market reaction to the stock’s latest earnings blowout.
It was “an extraordinary quarter”, said chief executive, Jensen Huang, with Nvidia beating revenue and earnings estimates and raising forward guidance.
However, the stock slipped after earnings and continued drifting lower in subsequent days, taking it 10 per cent below recent all-time highs.
“Nvidia’s latest record earnings fail to impress investors,” headlined BBC. “Nvidia fails to dazzle investors despite lifting dividends,” said the Financial Times, saying the cautious response to “stellar” earnings underlined the “challenge in sustaining the meteoric rally that has made it the world’s most valuable company”.
RM Block
Analysts referred to slowing growth, more fierce competition and customers developing their own chips, and the broader challenge of sustaining exceptional gains as Nvidia grows ever larger.
Meanwhile, investment website the Motley Fool cautioned about Nvidia’s “complicated challenges”, saying the market “doesn’t seem to be convinced by its strong earnings reports”.
There is a danger, however, in reading too much into post-earnings price action. Firstly, Nvidia beat earnings estimates in 18 of the last 20 quarters. Everyone expected a repeat performance; as Stocktake noted before earnings, Nvidia had rallied some 40 per cent over the previous six weeks.
Secondly, the FT’s aforementioned headline is almost identical to one it used in February: “Nvidia shares fall as blockbuster results fail to dazzle.” In fact, this is the fourth straight quarter in which Nvidia’s shares retreated despite better-than-expected results, only for shares to invariably resume their upward trajectory.
Every pause, sell-off or muted earnings reaction has produced a new crop of calls that Nvidia has finally peaked. It’s a familiar interpretative reflex: perhaps the market is “telling us something”.
However, not every dip is a message from the market. Markets eventually humble most high-flyers, but the problem is they also humble those calling the top too early.
