Bears Love Nvidia’s Bad Earnings Guidance

Stocks rose modestly this morning as traders absorbed Nvidia’s latest earnings report ahead of the Thanksgiving break. The Nasdaq Composite led the charge, climbing about 0.7%, while the S&P 500 and the Dow Jones Industrial Average followed with increases of roughly 0.4% and 0.3%, respectively.

Leading chipmaker Nvidia delivered a blowout quarterly earnings report, surpassing Wall Street’s expectations. The company reported adjusted earnings per share of $4.02 on revenue of $18.12 billion, beating the anticipated $3.36 earnings per share on $16.1 billion revenue. This performance reflects a significant surge in AI demand, with a 34% increase in revenue from the previous quarter and a whopping 206% jump from the same period last year.

Despite this strong showing, Nvidia’s stock dipped about 3% today on concerns that growth had peaked. The company’s revenue guidance for the current quarter also exceeded forecasts, aiming for around $20 billion, against analysts’ predictions of $17.8 billion.

Nvidia CEO Jensen Huang highlighted the shift in the industry towards accelerated computing and generative AI, noting the rapid adoption by consumer internet companies and global cloud service providers. However, the company’s outlook is tempered by new U.S. restrictions on chip exports to China, which Nvidia CFO Colette Kress said could significantly impact sales in the affected regions.

Kress elaborated on the potential effects of these export controls, acknowledging their negative impact on Nvidia’s China business and the uncertainty surrounding their long-term implications. Despite this, the company remains optimistic about growth in other regions.

Nvidia’s data center revenue, which includes its AI chips, hit $14.51 billion, surpassing the expected $12.82 billion. The gaming segment also outperformed expectations, bringing in $2.86 billion against the forecasted $2.7 billion. These segments have seen annual growth rates of 279% and 81%, respectively.

This earnings report follows a record-high close for Nvidia’s stock at $504.09 per share on Monday, though it saw a slight decline of 0.9% on Tuesday.

Nvidia’s performance this year has been a significant market mover, particularly as a member of the “Magnificent Seven” stocks – Apple, Alphabet, Microsoft, Amazon, Meta, and Tesla. These stocks have collectively soared more than 70% this year through mid-November, outpacing the 6% rise in the remaining S&P 500 stocks. And while that’s great for Big Tech, a top-heavy general market poses significant risks for the overall index.

Oil prices also took a hit today as OPEC+ postponed a meeting to discuss output, with West Texas Intermediate crude futures dropping over 4% to just above $74 per barrel.

In another twist in the AI sector, OpenAI announced a surprising reversal with Sam Altman returning as CEO, just days after his removal. This move, seen as a victory for Microsoft, a key OpenAI backer, comes amid efforts to stabilize the company, including bringing in new board members like former Treasury Secretary Larry Summers.

Microsoft’s stock saw a modest increase of less than 1% following this development.

Elsewhere in the market, Deere’s shares fell 6% early this morning after the company issued a downbeat profit forecast. The farm equipment giant’s warning about the impact of high borrowing costs on demand echoes similar concerns raised in recent retail earnings reports.

Yes, retailers are setting themselves low hurdles to clear the next time they report earnings. But with stocks well elevated above the October lows, this narrative could be what ultimately sparks the next selloff, and soon, considering that the market – and tech, in particular – remains extremely overbought.


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