Nvidia’s share price dropped by more than 5% on Thursday as investors’ concerns over its leadership in the booming artificial intelligence sector dampened enthusiasm for its better-than-expected earnings.
The company reported impressive quarterly results, but these figures were not enough to soothe the already fragile market sentiment on Wall Street. Companies across various industries, from trucking to software, have been on edge this year, fearing that artificial intelligence could disrupt their businesses. High valuations and huge capital expenditures have also set a very high bar for these companies.
Richard Clode, a portfolio manager at Janus Henderson, told CNBC: “The focus of the debate has shifted from near-term results to the sustainability of artificial intelligence capital expenditure, with concerns over its scale, monetization and potential cash flow deterioration.”
Nvidia’s share price recorded its worst single-day performance since April. Shares of other major chipmakers also dropped significantly, such as Broadcom. Its share price fell by more than 3%, while TSMC’s declined by 2.8%.
Investors pointed out that the $100 billion deal between Nvidia and OpenAI has hit a snag, which is a pain point for the decline in the stock price.
Nvidia’s 10-K regulatory filing released on Wednesday stated that although the company is “finalizing an investment and cooperation agreement” with OpenAI, the manufacturer of ChatGPT, “we cannot guarantee that we will reach an investment and cooperation agreement with OpenAI, nor can we guarantee that the transaction will be completed.”
Tom Graff, the chief investment officer of Facet, expects the stock to experience a “bumpy ride” for at least the next few quarters.
He said that after Microsoft and Amazon and other clients are expected to increase their data center spending, market expectations are that Nvidia’s performance this quarter will be good, but investors hope to get more information from this chip giant.
Graff said, “We haven’t received specific details on future performance guidance. If companies like OpenAI might be slowing down their spending, this should be reflected in actual revenue in the next one to two quarters. Therefore, the lack of a specific revenue outlook is concerning.”
Market participants also expect that as the industry shifts from training-intensive demands to inference-driven workloads, Nvidia’s dominance in the artificial intelligence field may change, and some believe this could intensify competition from other chipmakers.
Hardika Singh, an economic strategist at Fundstrat, wrote in a report to clients on Thursday: “Nvidia’s mistake was its failure to allay investors’ concerns about the narrowing of its moat in the evolving computing field.” Singh explained to CNBC that the report indicates “the current driver of the stock market is mainly sentiment rather than logic.” She pointed out that even if there are other competitors in the field, this does not mean Nvidia cannot ultimately prevail.
Singh added that the architecture of Nvidia’s Vera Rubin chip has been specially designed to make it extremely powerful in inference.
Similarly, Adam Phillips of EP Wealth Advisors and Dan Hanbury, co-portfolio manager of global strategic equities at Ninety One, said they believe the reaction to Nvidia’s earnings release reflects investors’ anxiety about the AI trade in recent months.
“The challenges they face are very significant,” said Phillips, the managing director of the company’s investment department. “Given the company’s growth rate and the achievements it has made here over the past few years, the bar is now set too high. It’s getting harder and harder to impress Wall Street. I think many investors are wondering what the next steps will be.”
