What happened
After dropping steeply early Thursday morning, then recovering in the late morning, it's afternoon now, and Nvidia (NVDA 1.62%) stock is down again -- by 2% as of 2:25 p.m. ET.
So what
It's not entirely clear what has investors upset with Nvidia, though.
On the one hand, Advanced Micro Devices (AMD 1.25%) just revealed that it has won some more business from Alphabet (GOOG +0.25%) (GOOGL +0.25%), which chose to use AMD EPYC processors to power Google Cloud's new "C2D virtual machine" offering. I suppose investors may have been hoping Google would choose Nvidia chips for that. Google Cloud's revenues more than tripled over the last three years (reaching $19.2 billion in 2021, according to data from S&P Global Market Intelligence), making it Alphabet's fastest-growing business division, and perhaps a tempting target for Nvidia.
Still, given AMD's entrenched position as a Google Cloud supplier, I don't think it was really a big surprise that Alphabet decided to stick with it. (AMD stock actually went down on Thursday despite the Alphabet news, which suggests that investors weren't paying much attention to it in any case.)
Image source: Getty Images.
Now what
I think the simpler and more likely reason that Nvidia stock is showing weakness Thursday is that some investors are stepping to the sidelines in advance of the chipmaker's upcoming earnings report next Wednesday, so as to not get caught in a downdraft if the news is bad.
After all, analysts are expecting to hear that Nvidia grew sales by 48% year over year in Q4 to $7.4 billion, and grew earnings by 58% to $1.22 per share. On the one hand, this indicates great optimism and great confidence in Nvidia. On the other hand, it sets a relatively high bar, and raises the risk of a sharper share price decline if Nvidia trips trying to clear that bar.
Given the high valuation of Nvidia stock right now -- it trades at 74 times trailing earnings -- it wouldn't take much of a miss to send the company's shares tumbling come Wednesday. With Nvidia's stock price up 75% over the past year, investors who've profited from its run-up already may not want to keep their profits at risk through earnings day.
If that's their reason for selling Thursday, I cannot say I blame them.
