Nvidia (NVDA +1.30%) delivered yet another showstopping earnings report last week, beating estimates, reaching records, and forecasting more impressive growth ahead. This is as the artificial intelligence (AI) boom marches on, and as tech giants and AI customers of all sizes rush to get in on Nvidia's top graphics processing units (GPUs) to power their projects.
Yet, all of this good news wasn't enough to push Nvidia stock higher. In fact, in the two trading sessions following the report, the stock actually fell a total of 3.6%. Of course, this isn't a huge drop, but it doesn't reflect a huge sign of confidence in Nvidia either.
Nvidia's latest update should have wowed investors, propelling the stock into a fresh new cycle of gains. But it didn't. Here's what I think is going on with the shares after the AI giant's blowout earnings report.
Image source: Getty Images.
Nvidia's AI empire
First, let's start out with a bit of background on the Nvidia story so far and a summary of the latest quarter. Nvidia has built an AI empire, including its star product -- the GPU -- as well as a full portfolio of related products and services. The idea is that a cloud service provider like Amazon and its customers or big tech players such as Meta Platforms may turn to Nvidia for all of their AI needs. Nvidia also has built out platforms to serve specific industries and specialties, such as robotics -- and these may be key growth drivers in the future stages of the AI story.
This strategy has resulted in explosive revenue growth for Nvidia, and at high levels of profitability on sales. The company has surpassed analysts' expectations quarter after quarter -- including the latest period -- and this has led to solid stock performance over time too. For example, the stock has soared 1,300% over the past five years.
NASDAQ: NVDA
Key Data Points
In the latest quarter, the positive trends continued and even gained momentum. Nvidia reported a 85% increase in sales to $81 billion for the third straight quarter of accelerating sales. Gross margin of greater than 74% shows that Nvidia is generating significant profits too. Meanwhile, with high demand ongoing for the company's Blackwell platform and shipping of the new Vera Rubin system set for the third quarter, there's reason to be optimistic about revenue growth in the quarters to come. Nvidia reiterated its forecast for these systems to generate $1 trillion in revenue from 2025 through the 2027 calendar year.
Why did Nvidia's stock fall?
Considering all of this great news, why did Nvidia stock fall after its earnings report?
It's important to keep in mind that Nvidia must contend with some headwinds. Nvidia faces growing competition from other chip designers and even cloud companies developing their own chips. And Nvidia still hasn't been able to relaunch its AI chips in China. The U.S. initially halted sales there as part of export controls, then gave the OK for the export of certain products -- but China hasn't yet allowed AI chip imports into the country.
However, those elements have been ongoing and haven't disrupted Nvidia's market leadership or its ability to deliver enormous growth.
Here's what I think is going on with Nvidia stock after the latest earnings update. Investors expect a lot from Nvidia, and the company is delivering. I don't think there's disappointment over earnings performance or even great worries about the headwinds I've mentioned above. Instead, investors may have the feeling that they don't have to rush to get in on Nvidia stock -- it probably won't soar to extreme levels overnight.
A long growth story
The idea is there's plenty of time to hop on the Nvidia train because this is a long growth story that could deliver significant gains over time. Meanwhile, investors who have held onto the stock for years might be trimming their positions simply to lock in gains and reallocate the funds into other stocks that haven't yet taken off -- but this isn't a vote against Nvidia.
All of this means investors shouldn't worry about Nvidia's post-earnings slump. It's impossible to predict exactly when the stock will start roaring significantly higher again, but the important point is that it has the potential to do so. And that means investors should take the opportunity to buy this top AI stock on the dip and hold on for the long haul.
