Nvidia’s headquarters in Silicon Valley.
Andrej Sokolow | Picture Alliance | Getty Images
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The bottom line
Is it fair to say Nvidia beat expectations, if the chipmaker’s performance over the past year has driven retail investors to always expect that the company will exceed expectations?
For its recently concluded quarter, Nvidia earned $30.04 billion in revenue, higher than the $28.7 billion expected. Even better, it said it anticipates around $32.5 billion in revenue for the current quarter, outstripping the $31.7 billion estimated by analysts.
That boost is because the company expects “to ship several billion dollars in Blackwell revenue,” said Nvidia Chief Financial Officer Colette Kress. Blackwell is Nvidia’s next-generation artificial intelligence chip.
It’s all good news, right? Why, then, did Nvidia stock fall more than 7% in extended trade?
There was one black cloud: Nvidia’s gross margin in the current quarter dropped to 75.1% from 78.4% compared with the previous period; the company also said it expects full-year gross margins to be in the “mid-70% range.”
That’s perhaps the only figure that came in below consensus expectations. Analysts were looking at 76.4% for full-year margin.
Dipping margins mean income won’t grow as quickly even if revenue explodes. So that’s a legitimate cause for concern.
Nvidia’s earnings came out after the bell, but they had investors on edge and dragged the broader U.S. indexes lower Wednesday.
Investors in general have been worried about the sustainability of Big Tech’s boom. The tech-heavy Nasdaq Composite dropped 1.12%, the S&P 500 slipped 0.6% and the Dow Jones Industrial Average fell 0.39%.
When U.S. trading reopens Thursday, Nvidia’s effects on the broader market will likely be more pronounced. The options market is “implying a +/- 10% move following earnings, higher than its four quarter average of 7%,” John Marshall, who’s on Goldman Sachs’ derivatives research team, said in a note to clients.
When you’re expected to beat expectations, you essentially have two bars to clear. That, perhaps, places unfair pressure on a company and its stock.
— CNBC’s Kif Leswing and Jesse Pound contributed to this report.