Published in Svenska Dagbladet, 2024-08-29. Translated from Swedish.
Nvidia delivered strong quarterly figures but was met with mild scepticism from the market. The company now faces its biggest challenge yet: market expectations.
A small group of enthusiasts gathered at a sports bar in New York on Wednesday afternoon. But it was not a game on the screens — they were there to watch chipmaker Nvidia’s quarterly earnings report. The hottest tech stocks have been blazing this year, and the scene at the bar suggests we may be entering a phase where things are becoming slightly absurd. Quarterly earnings are not traditional entertainment — they tend to be dry as dust. But if you have watched your Nvidia shares rise more than 160 percent over the past year, they become considerably more exciting.
Given the company’s size and weighting in the S&P 500 index, Nvidia’s figures mattered to the entire market. The question everyone wanted answered was whether investment in AI appeared set to remain at record levels, or whether there were signs of a coming slowdown.
Nvidia delivered numbers that for any other company would have been extraordinary. Revenue grew 130 percent year-on-year. Gross margin expanded. Profit nearly tripled. On top of that, the company announced a share buyback programme worth around 509 billion kronor. These were figures that any CFO would dream of presenting.
But the stock market is not only about what you deliver — it is about how you deliver relative to market expectations. And for the first time in a long while, several analyst estimates exceeded even these strong figures. The stock fell around 5 percent in after-hours trading.
The concern likely stemmed from Nvidia’s revenue guidance. It came in at the lower end of market expectations, and the company indicated that its new chip — Blackwell — had some production issues. Despite this, Nvidia said it expected Blackwell to generate “billions of dollars” in revenue within just two quarters.
But when you have a stock that has already risen so extraordinarily quickly — around 500 percent over the past two years — the expectations are priced in accordingly. A perceived deceleration, even from a very elevated level, is enough to create anxiety.
Nvidia has effectively become a barometer for AI development as a whole. The tech giants’ investments in the sector flow largely into Nvidia’s pockets — companies like Amazon, Google and Microsoft invest billions in data centres where Nvidia chips are often a critical component. As long as the willingness to invest among the tech majors remains strong, Nvidia benefits.
On the horizon one can sense a concern about whether that investment appetite will prove as enduring as the market hopes. Goldman Sachs reports suggest AI’s contribution to GDP growth may be closer to 1 percent than the 6-plus percent previously forecast — and the payoff may lie considerably further into the future. If that is the case, will the tech companies’ shareholders tolerate such large investments without seeing revenues increase at the same pace? Any hint of doubt could hit Nvidia hard, priced as it is for continued extraordinary growth.
For every other chipmaker, the challenge is catching up with Nvidia — competitors’ products simply are not as good yet, and billions are being invested around the world to close that gap. Nvidia’s challenge is an entirely different one. It has the products, the customers and the momentum. Now it must live up to the expectations created by its phenomenal run.
It is no longer enough just to be good — Nvidia must essentially beat numbers that a year ago would have been unthinkable. The market’s reaction on Wednesday evening showed that the road ahead will not be as smooth as the road that got it here.
