Nvidia stock fell Wednesday despite the artificial-intelligence chip leader trouncing third-quarter estimates and guiding higher than views for the current period. So, why are investors blowing raspberries instead of tossing flowers?
Wall Street analysts say Nvidia stock was priced for perfection and the company missed lofty "whisper numbers" with its outlook. That's likely due to the loss of business to China because of recent U.S. trade restrictions covering advanced semiconductor technology.
On a conference call with analysts, Nvidia Chief Financial Officer Colette Kress said the export controls will have a "substantial" impact on the company's sales in China.
"The export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term," she said.
Guidance Short Of Whisper Numbers
Investors were focused on Nvidia's revenue guidance for the January-ending quarter, Gene Munster, managing partner at Deepwater Asset Management, said in a video post.
"They did raise guidance by 11%," Munster said. "However, there were whisper numbers that they were going to raise guidance by 15 to 20%."
On the stock market today, Nvidia stock fell 2.5% to close at 487.16.
Nvidia stock notched a record high of 505.48 on Monday ahead of the company's earnings news late Tuesday.
The Santa Clara, Calif.-based company earned an adjusted $4.02 a share on sales of $18.12 billion in the quarter ended Oct. 29. Analysts polled by FactSet had expected earnings of $3.37 a share on sales of $16.19 billion. On a year-over-year basis, Nvidia earnings rocketed 593%, while sales soared 206%.
For the current quarter, Nvidia forecast sales of $20 billion, up 231% from the prior year. Analysts had been modeling sales of $17.96 billion for the fiscal fourth quarter ending in January.
Data Center Business In Spotlight
In the third quarter, Nvidia's data center sales jumped 279% from the year-earlier period to a record $14.51 billion. Data center sales increased 41% from the second quarter.
Analysts say the sustainability of Nvidia's data center business growth is a key focus area.
Near-term demand for data center AI processors and related gear "remains strong," Goldman Sachs analyst Toshiya Hari said in a client note. But that could change if cloud service providers "fail to monetize ongoing investments" in generative AI, he said. Hari rates Nvidia stock as a buy with a price target of 625.
Bernstein analyst Stacy Rasgon reiterated his outperform rating on NVDA stock and upped his price target to 700 from 675.
"Everyone knows that AI demand is strong, and hence the primary controversy on the stock has been the question of sustainability," Rasgon said in a client note. "We doubt that question will find resolution at this point. However, numbers are going to continue marching materially higher for now."
Nvidia Chief Executive Jensen Huang said he expects the company's data center business to grow at least through calendar 2025.
Nvidia Stock Is On Three IBD Lists
Wedbush Securities analyst Matt Bryson kept his outperform rating on Nvidia stock with a price target of 600.
"We believe Nvidia is set up for at least another quarter or two of similar results as demand for GPUs (graphics processing units) continues to outpace supply," Bryson said in a client note.
On Nov. 9, Nvidia stock broke out of a double-bottom base at a buy point of 476.09, according to IBD MarketSmith charts.
NVDA stock is on three IBD lists: IBD 50, Leaderboard and Tech Leaders. Also, Nvidia is one of the Magnificent Seven stocks that have driven the market higher this year.
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