Aug 25, 2023

Nvidia reported a second round of excellent earnings, but this time the stock’s rally slowed.


NVDA: Daily chart

Nvidia shares hit support from previous highs halfway through Thursday’s US trading session. The stock price needs to stand above this level to extend the rally.

Nvidia reported strong second-quarter results, with earnings and revenue beating expectations. The company also expressed optimism about its revenue outlook for the third quarter. The company’s fortunes have changed dramatically this year due to the growing demand for its GPU chips from artificial intelligence (AI).

Nvidia shares soared 10% to a record high, and their market capitalization rose to $1.27 trillion. However, the company’s $13.5 billion profit was close to analysts’ expectations of about $12 billion, suggesting that analytics are catching up. This could threaten the company’s high financial valuation.

Earnings per share were $2.70, beating expectations of about $2.09 and up more than 400% from a year ago. Revenue increased 101% year-over-year. AI models rely on data centre cloud resources, and Nvidia’s data centre revenue also soared to a record $10.3 billion, while gaming revenue rose 11% from a year ago to $2.5 billion. The company also announced a $25 billion IPO repurchase programme.

The chipmaker expects third-quarter revenue of about $16 billion, up or minus 2 percent. This is still higher than analysts’ expectations of $12.3 billion. The world’s largest chip makers are expected to be the beneficiaries of the early AI boom. Other chip makers, such as AMD, are bringing competition, but the challenge will still take some time.

Nvidia CEO Jensen Huang said that “a new era of computing has begun. “Companies around the world are transitioning from general-purpose computing to accelerated computing and generative AI.”

Goldman Sachs analysts said: “Based on the company’s strong competitive position in the fast-growing (but still in its infancy) AI semiconductor market, we continue to see very promising prospects for the company. The company’s target price is $495.

“AMD’s positioning in the market may seem like a strong first competitor, but we may not see initial signs of success until next year. At the same time, Nvidia will continue to get the lion’s share of the economy from the AI boom,” Barclays said, maintaining a high price target of $600.

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