Why AI Hype Lifted Nvidia but Not Snowflake Stock

Wall Street kept its eyes squarely on Washington on Wednesday, and investors didn't like what they saw. Without any apparent solution in sight for the debt ceiling problem, stock markets once again lost ground. The Dow Jones Industrial Average (^DJI 0.69%) led the way lower, but the Nasdaq Composite (^IXIC 1.59%) and S&P 500 (^GSPC 1.20%) were also off by more than half a percent each.

Data source: Yahoo! Finance.

After the closing bell, some big-name tech stocks were in the news. Artificial intelligence has been all the rage lately, with companies seemingly having just to mention AI in order to see big pops. Indeed, Nvidia (NVDA 3.65%) was the big winner in after-hours trading Wednesday afternoon following the release of its latest quarterly results. However, data specialist Snowflake (SNOW 2.69%) wasn't as fortunate as it suffered a significant drop in its share price. Below, you'll learn more about both stocks to discover why only one seemed to benefit from the AI hype.

Nvidia gets a $170 billion boost from AI

Shares of Nvidia were up 23% in after-hours trading Wednesday. Based on the 2.47 billion shares outstanding according to data from Yahoo! Finance, the semiconductor giant enjoyed an increase to its market capitalization of more than $170 billion just from the positive reaction to its fiscal first-quarter financial results for the period ended April 30.

On their face, Nvidia's numbers actually compared pretty poorly to those from 12 months ago. Revenue was down 13% year over year to $7.19 billion. Adjusted earnings of $1.09 per share were similarly off by 20% compared to the first quarter of last year. However, both numbers were higher than they were in the fourth quarter, and they exceeded what most investors had expected to see from Nvidia.

Bullish investors predictably hinged their optimism on Nvidia's prospects for growth from artificial intelligence efforts. Indeed, the press release mentioned AI more than a dozen times, noting that data center demand is on the rise as enterprise customers seek to integrate generative AI capabilities into their systems.

Shareholders were also pleased to see what could be a big ramp-up in sales in the current quarter, as Nvidia projected $11 billion in revenue. That would be a massive step up from the $6.7 billion in sales that Nvidia had in the year-earlier period, and that has investors more excited than ever at the prospects of the semiconductor stock getting through any economic slowdown in better shape than ever.

Clouds ahead for Snowflake?

Moving the other way, Snowflake shares dropped 11% after hours. The cloud data specialist's fiscal first-quarter results for the period ended April 30 showed considerable growth, but projections for more sluggish gains later in the year weighed on shareholder sentiment.

Snowflake's quarterly numbers looked great. Revenue of $624 million was up 48% year over year, with net revenue retention rates remaining impressive at 151%. Total customer counts were up 29% from year-ago figures to 8,167, with 373 of those clients spending at least $1 million annually on the data platform, up 80% from 12 months ago. However, losses widened from year-ago levels, although operating cash flow improved by $115 million to approach the $300 million mark.

Investors balked at Snowflake's remaining performance obligation figures, which grew at a slower 31% pace to $3.4 billion. Projections for 33% to 34% growth in product revenue in the fiscal second quarter also weighed on sentiment. In addition, CEO Frank Slootman only mentioned AI once in the press release, and his attempt to draw the natural connection between data science, AI, and machine learning might have been too subtle for momentum investors more interested in counting the number of times companies refer to the booming trend.

The disparate performances of Nvidia and Snowflake suggest that companies will prioritize their tech spending to upgrade their hardware capabilities over infrastructure software purchases. That's not entirely consistent with what AI will demand, but the short-term movements of stocks more often reflect instantaneous reactions than a well-considered investment thesis.