Unexpected stock plunge despite record Nvidia earnings
On Thursday, we learned the financial results of Nvidia, one of the key players in the AI market. On one hand, they exceeded forecasts, but on the other hand, they did not sufficiently satisfy investors. Stock prices clearly fell. Why? Grzegorz Dróżdż, an analyst at Conotoxia Ltd. (Invest.Cinkciarz.pl), explains.
The expert notes that "Nvidia's financial results once again exceeded even the most optimistic forecasts." Despite this, the market reaction was surprising. "The stock price in after-hours trading fell by as much as 8 percent. After trading on the German market opened, the decline decreased to 4 percent," Dróżdż reports. The analyst suggests that this may confirm the stock market, saying, " Buy on rumours, sell on facts."
Dróżdż points to the broader market context: "The decline in the stock of this key player in the AI technology market caused more than a 1 percent drop in Nasdaq 100 futures and a sell-off of most major tech companies." This shows how significant Nvidia's results are to the market.
Nvidia at the top. Record results
The analyst summarized the company's impressive financial results for the second quarter of 2024. "The company recorded record revenues of $30 billion, which represents an increase of 122 percent year over year. Net profit increased by 168 percent year over year, translating to a net profit margin of as much as 55 percent," Dróżdż calculates. He emphasizes that the largest sales growth came from the data centre segment, driven by demand for the Hopper GPU platform used in AI applications.
The expert notes Nvidia's plans to introduce the new Blackwell architecture in the fourth quarter. "This may have alarmed markets, counting on an earlier implementation," Dróżdż suggests. This may be one of the factors affecting investor reactions.
Nvidia predicts a decade of growth
Analyzing the company's fundamentals, Dróżdż states that "the current stock price assumes an average annual improvement in financial results of around 30 percent over the next 10 years." In his opinion, the company is developing in line with these assumptions, although it may experience a slowdown in profit growth in the future.
Grzegorz Dróżdż points to a positive aspect for shareholders. "It's worth highlighting the significant increase in payouts to shareholders, particularly through share buyback programs, which have been expanded by an additional $50 billion, compared to the previous $7.4 billion." This could be an attractive factor for long-term investors.
