Shares of Nvidia (NVDA 1.27%) were dropping Wednesday, down by as much as 4.5% before recovering to a 2.1% decline as of 12:41 p.m. ET. But even the mild decline was notable in light of the overall S&P 500 being up today by about 0.5% at the same time.
Nvidia held its third-quarter earnings release and conference call last night, with its typical amazing growth numbers that handily beat expectations. But since this beat appears to have been largely anticipated, as Nvidia's stock had already appreciated some 25% off its recent bottom on Oct. 31, it appears the solid numbers precipitated a "sell the news" round of profit-taking.
Nvidia continues to post unbelievable growth rates
In the quarter, Nvidia posted $18.1 billion in revenue, up a staggering 206% year over year, and beating analysts' estimates by just over $2 billion! Adjusted (non-GAAP) earnings per share came in at $4.02, up 593%, also beating expectations by a hefty $0.63.
Obviously, the cornerstone of this incredible performance is Nvidia's data center revenue, which totaled just over $14.5 billion, up 279% and 41% quarter over quarter. That's no surprise, as Nvidia has a big lead in artificial intelligence (AI) GPUs, which are still supply constrained and sought after by every business, cloud provider, supercomputer and government in the world right now.
Meanwhile, Nvidia is only accelerating its pace of innovation. The company announced TensorRT LLM, an open-source software library that increases the inferencing power of Nvidia GPUs. And next year, Nvidia will release the H200, which will also double Nvidia chips' inferencing power. Last month, Nvidia announced it was doubling its pace of innovation, and will now come out with a new chip architecture every year, as opposed to every two years.
So why have investors sold today? Potentially for two combined reasons. First, Nvidia doesn't "look" like a cheap stock, with a P/E ratio of 116. Of course, it looks much cheaper on a forward-looking basis at 32 times next year's earnings estimates. But given its recent string of beats, I think Nvidia is going to handily beat the current $17.38 estimate for fiscal 2025, which ends in January 2025.
Another factor may be that Nvidia guided for "only" $20 billion in revenue next quarter, or about a 10% increase over Q3. That would obviously mark a big deceleration from the 34% quarter-over-quarter gain in the prior quarter.
However, there are a couple of things to consider here. One, Nvidia anticipates a decline in its China revenue due to new U.S. export restrictions for its data center chips. Management noted China accounted for 20% to 25% of its revenue prior, and that will decline significantly. In addition, management anticipated its gaming revenue will decline quarter over quarter, due to the anticipated post-holiday seasonal decline in notebooks. Gaming made up a not insignificant 16% of revenue last quarter.
So, achieving 10% quarterly growth in spite of those two large headwinds is actually impressive.
Don't worry about Nvidia because of today's reaction
There was nothing wrong with Nvidia's numbers or guidance that longer-term investors should worry about in last night's release. Today's decline is likely noise, and perhaps due to some professional investors locking in profits before the end of the year.
Based on its outlook and slew of innovations and product releases, it appears Nvidia's strength in the all-important AI market is as strong as ever.
