Nvidia (NASDAQ:NVDA | NVDA Price Prediction) had quite the impressive showing at its latest second-quarter earnings reveal. Sales growth, up 56% year over year, remained head and shoulders above its rivals in the Magnificent Seven. And with the bottom line topping estimates, investors may be a bit confused as to why shares didn’t rally in response to the number.
Make no mistake, Nvidia delivered a fantastic number, but let’s not kid ourselves: expectations were heightened going into the quarter. Though Nvidia’s figures signal that the ongoing AI revolution is still alive and well, the latest round of results lacked the awe factor that may now be needed to move the needle higher on a $4.25 trillion firm that the retail sector has been buying up aggressively in recent years.
Nvidia stock runs into a bump in the road after a decent quarter. Anything to be concerned about?
Now, Nvidia is a great company; it has a lot of even more exciting things in the works, and Jensen Huang is a man never to bet against. That said, no company is immune to the odd quarterly disappointment. And for Nvidia, I do think its great, but not a jaw-dropping quarter stands out as more of a buying opportunity than a sign that it’s over for the firm, as some look for the AI king to lose some ground in the market cap race. Indeed, it’s already a powerhouse worth more than $4 trillion. How much higher can it go?
Though I understand the bear argument, especially for believers of the so-called AI bubble, I do view Nvidia as taking a much-needed breather ahead of what could be more rally-inducing quarters going into the new year. Indeed, I’d be very surprised if Nvidia stock were to do nothing (or move lower) in around a year from now, once we’ve gotten the first glimpse of what Rubin, the company’s next big leap in GPU innovation, is capable of.
Add the potential for a China-driven sales surge as the U.S. works out a deal that’d allow the GPU giant to sell to China, and I do think there are a lot of potential drivers of future earnings beats that don’t end with a round of profit-taking from investors.
The post-earnings dip doesn’t take away from the long-term growth narrative
As far as earnings beats go, Nvidia’s latest one was nothing to get all too excited about. But for investors looking to enter the name, that’s a good thing. While I wouldn’t go as far as saying the latest earnings beat comes for “free,” as the post-earnings pullback could worsen as we enter September (typically a profit-taking month), and the hyperscalers, like Meta Platforms (NASDAQ:META), look to start a trend of pulling back on AI spend. Though peak AI spending may not be here yet, I do think a near-term cooling may be in the cards.
Such an AI winter could be short-lived, though, especially as the biggest catalysts for Nvidia look to come online next year.
Until then, investors may wish to be incremental buyers on the way down. The stock plunged 3.3% last Friday, as investors had more time to digest the results. If I had to make a bet, I’d say this is yet another dip that Nvidia investors should have gotten used to by now. Either way, I think Nvidia has what it takes to be a $5 trillion company by year’s end. Though, the next quarter will need to have more than just an earnings beat.
Rubin to the rescue?
Going into the new year, the big question on the minds of investors will be whether Rubin will come to the rescue. I think it’s not a good idea to underestimate Jensen Huang, as his latest line of GPUs looks to sell faster than they’re made. In short, don’t let a cold reception to a good quarter make you lose focus on the long-term opportunity at hand. At the end of the day, Nvidia’s large market cap, I believe, doesn’t detract from its ability to continue leaping forward.
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