Nvidia’s Stock Should Not Be Dropping

By Douglas A. McIntyre Published Aug 29, 6:40AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Nvidia’s Stock Should Not Be Dropping — © solarseven / iStock via Getty Images

24/7 Wall St. Insights

Nvidia Corp. (NASDAQ: NVDA | NVDA Price Prediction) stock should not have been punished.
Its earnings numbers do nothing to undermine its astonishing future.
Also: Discover the Next Nvidia.

It happens from time to time. A company turns in remarkable results. There is something slightly wrong with expectations, which is usually the public corporation’s forward guidance, and then its stock is punished brutally. This happened to Nvidia Corp. (NASDAQ: NVDA) after earnings. It should not have. Nvidia remains at the cutting edge of the artificial intelligence (AI) revolution and will stay there for the foreseeable future. It remains the world’s most innovative company and one the market should continue to prize.

After hours, Nvidia’s stock dropped 5%, after it was down 2% during the day. The decline puts Nvidia up 5% for the past month, about the same as the S&P 500.

Nvidia posted revenue of $30 billion, which was 122% higher than a year ago. Net income rose 168% to $16.7 billion. Data center revenue was up 154% to $26.3 billion. It is nearly impossible to find a large company with net margins that are even close, today or historically. It could have happened when Microsoft Corp. (NASDAQ: MSFT) had the best quarter ever. The two companies have almost identical market caps, and Microsoft’s promise is more modest. Nvidia could easily have Microsoft’s level of revenue next year and still be growing faster.

Barron’s mentioned one reason Nvidia should not sell off. Experts expect it will keep its share of the AI chip market. On the other hand, D.A. Davidson managing director Gil Luria said revenue could drop at some point. Luria is likely to be out of a job soon.

There are two basic arguments about why Nvidia will eventually face growth problems. The first is that Advanced Micro Devices Inc. (NASDAQ: AMD) will drag it down from behind. AMD has been working on products almost identical to Nvidia’s. AMD’s shares are down 1% this year, while Nvidia’s are 135% higher, even with the recent sell-off.

The other theory about Nvidia’s revenue is that the AI industry has gotten out over its skis. Companies like Microsoft have spent too much money on AI too early, and they may not get returns for another year or two. The problem is that Microsoft and other heavily AI-dependent companies must be out over their skis to be a significant part of the AI revolution. If they hold back, they may miss the most important technological advancement for over half a century.

Nvidia’s future is astonishing. Its earnings numbers do nothing to undermine that. Its stock, if anything, should rise.

Nvidia Soared 105% So Far This Year and Here Is Where It’s Going

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.