Nvidia earnings forecast: Chipmakers fails to impress investors, shares fall 6%, experts think bar set ‘too high’

Nvidia earnings forecast: Wall Street and investors were "unimpressed" by chipmaker Nvidia's quarterly earnings forecast released on August 28, Reuters reported. Despite the growth and profits, the reception of the forecast has been mixed.

Nvidia's shares fell 6 per cent in after-trading hours on August 28, pulling other tech stocks down as well — Advanced Micro Devices (AMD) and Broadcom also fell. Shares of Nvidia's biggest customers — Alphabet, Amazon, Meta Platforms and Microsoft, also dipped less than 1 per cent in after-hours trading on August 28.

On market open today (August 29), if Nvidia's shares continue to fall, the chipmaker is likely to lose $175 billion in market value.

Nvidia's Quarterly Forecast

Nvidia expects an adjusted gross margin of 75 per cent, plus or minus 50 basis points, in the third quarter. According to LSEG data, analysts, on average, forecast a gross margin of 75.5 percent. It reported a 75.7 per cent gross margin in the second quarter versus an average estimate of 75.8 per cent.

It forecast revenue of $32.5 billion, plus or minus 2 per cent, for the third quarter, compared with analysts' average estimate of $31.77 billion, according to LSEG data. Q2 revenue was $30.04 billion, beating estimates of $28.70 billion.

Bar Set Too High?

Nvidia's stock saw a dizzying rise this year — up over 150 per cent, adding a market value of $1.82 trillion and pulling up the broader S&P 500 to new highs. Investors thus had high expectations for the billions pushed into the generative artificial intelligence (AI) business, it added.

Ryan Detrick, chief market strategist at the Carson Group, felt that the previous results had set the bar high for Nvidia. He said, "Here's the issue: The size of the beat this time was much smaller than we've been seeing. 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 per cent, but it appears the bar was just set a tad too high this earnings season."

The revenue and gross margin forecast for the current quarter were not far from analysts' expectations but did not trump Wall Street targets. For context, in the last three consecutive quarters, Nvidia recorded revenue growth exceeding 200 per cent.

However, the report added that its past success has inflated Wall Street expectations even higher, given the company's “capacity to surpass estimates.”

Investors Fear Rethink on AI-based Funds Rush

Some investors fear that Nvidia's expectations-meeting forecast and "slow payoffs" could lead to a shake-up in the billions being invested into the generative AI space, the report said.

"It's a reflection of growing investor jitters about the long-term viability of the generative AI market, with the entire market seemingly hinging on Nvidia's performance," eMarketer analyst Jacob Bourne told Reuters.

Notably, Nvidia's biggest customers — Alphabet, Amazon, Meta Platforms, and Microsoft — are expected to spend over $200 billion this year, mostly on building AI infrastructure, such as data centres, it added.

Regulatory Concerns

Nvidia is also facing regulatory scrutiny about its practices. It said that it received requests for information from regulators in the United States and South Korea, on "sales of GPUs, efforts to allocate supply, foundation models and investments, partnerships and other agreements with companies developing foundation models."

Earlier, the company had noted inquiries only from the European Union, the United Kingdom and China.

In July, Reuters reported that France's antitrust regulator was also set to charge Nvidia for alleged anticompetitive practices.

(With inputs from Reuters)