Nvidia delivered earnings results that exceeded Wall Street expectations, yet investors sent the stock down 5% in Thursday trading, highlighting a new challenge for the AI chip leader. The chipmaker’s quarterly performance topped analyst forecasts for both revenue and profits, but the Nvidia earnings results failed to spark the rallies that previously accompanied such announcements. Shares traded at $186.76 around midday Thursday, reflecting growing investor fatigue despite strong fundamentals.
The stark contrast between Nvidia’s financial performance and its stock reaction marks a significant shift from previous quarters. According to reports, the company’s stock surged more than 24% in May 2023 following an earnings release, spiked 16% after fourth-quarter fiscal 2024 results, and jumped 10% the following quarter.
AI Fatigue Dampens Nvidia Earnings Impact
The muted market response reflects broader concerns about artificial intelligence sustainability and valuation. “There is no ‘good enough’ anymore,” Futurum CEO and principal analyst Daniel Newman told Business Insider. The chipmaker’s dominant position in AI hardware continues to receive praise from analysts, but its earnings no longer generate the dramatic stock movements investors previously anticipated.
However, the lackluster performance doesn’t necessarily indicate Wall Street has soured on Nvidia entirely. Instead, it underscores rising expectations and increasing skepticism about the longevity of AI spending. Newman explained that investors appreciate Nvidia’s margins and revenue bookings but harbor doubts about sustainability.
Tech Sector Concerns Weigh on Sentiment
Additionally, broader anxiety about AI has impacted the entire technology sector. Recent developments, including Anthropic’s Claude updates and warnings about potential AI disruption from Citrini Research, have heightened investor caution. These concerns have contributed to what Newman describes as a contradiction where investors “love it, but don’t believe it.”
Meanwhile, some analysts argue the market reaction is unjustified given Nvidia’s strong fundamentals. Freedom Capital Markets’ head of tech research, Paul Meeks, stated that Nvidia stock has been “unfairly” underappreciated following its beat-and-raise quarter. Meeks contended that Nvidia should trade at a premium compared to competitors and the broader market.
Valuation Debate Intensifies
The analyst highlighted a striking comparison regarding Nvidia earnings multiples. According to Meeks, AMD trades at a higher multiple than Nvidia despite having a data center business 11 times smaller, inferior profit margins, and slower prospective revenue growth. Furthermore, with rising estimates, Nvidia trades at only a slight premium on this year’s earnings compared to the S&P 500.
In contrast, analysts at Wolfe Research maintain a bullish stance on the stock. The firm considers Nvidia a top stock pick, stating that despite the stock reaction, the report represents strong performance versus expectations and offers nothing to change their positive thesis. Wolfe Research’s targets exceed consensus estimates, and the firm expects Wall Street’s average estimate to rise over time.
Rising Bar for Performance
The situation illustrates a challenging reality for Nvidia as the world’s most valuable company. The bar for earnings continues to rise amid signs of AI fatigue, creating an environment where even exceptional results may not satisfy investors. This dynamic represents a shift from the euphoria that previously surrounded AI-related stocks and the chipmaker’s market-moving announcements.
Analysts will likely continue monitoring Nvidia’s performance in coming quarters to assess whether current investor skepticism persists or whether confidence in AI infrastructure spending returns. The company’s ability to maintain growth trajectories and justify premium valuations remains uncertain as market sentiment evolves.
