Key Takeaways
- Nvidia shares fell on Wednesday for the fourth straight day ahead of an eagerly expected earnings report from a company that has been an investor darling amid the AI boom.
- Expectations for today’s report, due after the closing bell, are high, with analysts projecting revenue in the fiscal fourth quarter more than tripled from a year earlier.
- Nvidia’s earnings and the investor response to them could have an outsize impact on the broader market given its high valuation.
Nvidia (NVDA) shares lost ground Wednesday for the fourth consecutive session ahead of an eagerly anticipated earnings report from a company that has been an investor darling amid expectations that it will continue to be a prime beneficiary of the artificial intelligence (AI) boom.
Nvidia shares, which have more than tripled over the past year, were down 3.5% at $670.10 at about 1:20 p.m. ET. The stock, which had hit a record closing high of $739 last Wednesday, fell 4.4% on Tuesday, its biggest single-day drop since October.
Investors have come to expect only the best from Nvidia, so anything less than a blowout earnings report with strong guidance when the company reports after today’s market close could be perceived negatively by market participants. The trading action in recent days indicates that some investors believe that the optimism surrounding Nvidia, which Goldman Sachs has dubbed the “most important stock on planet earth,” may have gotten exaggerated.
Bill Baruch, founder and president of Blue Line Capital, said on CNBC Wednesday that his firm had sold 20% of its Nvidia stake on Tuesday. “We’ve reduced this and really just monetizing the move that’s happened. One of my fears more than anything is just an unwind,” he said, citing “tremendous call speculation.”
Baruch said he could build his position back up if the stock drops to around $610 or $620, as Nvidia is the clear leader in the early innings of AI. “I would love to reestablish a stronger position at that level,” he said.
Analysts Have Been Raising Estimates
While the stock price has tumbled, analysts have been raising their estimates for Nvidia. According to analysts’ estimates compiled by Visible Alpha, revenue for the fiscal fourth quarter is now seen at $20.80 billion, compared with $6.05 billion a year earlier, while net income is projected at $10.58 billion, up from $1.41 billion. A week ago, the consensus view called for revenue of $20.38 billion and net income of $10.40 billion.
Analysts at Wedbush said that their conversations with server manufacturers show “lifting backlog on better sales momentum” for Nvidia. “The only question around NVDA’s near-term performance and outlook, in our view, is to what magnitude results and guidance will exceed” estimates, according to a report last week.
Nvidia Earnings To Affect Broader Market Sentiment
Following its last two earnings release, in August and November, even with tremendous beats on profit and revenue, the stock fell in the immediate aftermath of the report only to eventually turn higher.
“The company has delivered strong earnings before only to disappoint a voracious market that expects ever more as it trades at a hefty valuation,” LPL Financial’s chief global strategist, Quincy Krosby, said Wednesday in a market commentary.
With a market capitalization of nearly $1.7 trillion, Nvidia is the fourth most-valuable company in the S&P 500 after Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN), meaning results could have an outsized impact on the index after the report.
“After today’s market close, global traders and investors alike will focus on earnings, but the guidance offered will be crucial not just for NVDA but for the broader market, a market that is in need of a viable positive catalyst,” Krosby added.