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Nvidia (NVDA) released its fiscal third-quarter 2024 earnings after the bell Tuesday night, and it was yet another stellar quarter for the company, as both the Q3 results and forward-looking guidance surpassed Wall Street's estimates. Conventional wisdom might suggest that NVDA shares would be trading higher today after the upside surprise - but the opposite appears to be true, with the stock down more than 3% near the midpoint of the session, despite what looks like a stellar set of numbers.
After the company's Q2 report, Nvidia shares quickly hit a new record high, but couldn't maintain the positive momentum in the days that followed. Now that the stock is down following impressive Q3 revenues and guidance, let's take a look at what’s plaguing the stock’s post-earnings price action.
Quantifying Nvidia’s Post-Earnings Price Action
Here are some interesting data points about Nvidia’s price movement after quarterly earnings. The Jensen Huang-led company has beat earnings estimates in 19 out of the last 20 quarters, while its revenues have outpaced Wall Street estimates for 18 consecutive quarters. However, the stock has risen only 14 times, and fell on six occasions, out of the previous 20 earnings reports.
Generally, Nvidia tends to be quite volatile after earnings, and its average price move after earnings was 6.1% in the previous 20 quarters. Looking at the current fiscal year, Nvidia shares surged following the Q1 release, but lost momentum quickly after the Q2 report, despite beating on both the top line and the bottom line.
Here’s Why Nvidia Stock is Down After Earnings Today
The fall in Nvidia stock today, despite the stellar earnings report, is due to the following three reasons:
- The mammoth stock rally in 2023: Nvidia stock hit its record highs a day ahead of the earnings release, and is the best-performing S&P 500 Index ($SPX) stock of 2023, based on its gain of 229%. When a stock is already up this sharply, the probability of a post-earnings rally is usually lower - and this is likely among the main reasons why Nvidia fell after the fiscal Q1 report, as well.
- Street estimates are conservative: Official Wall Street estimates for Nvidia have been quite conservative, and the company’s guidance more often than not is conservative. However, the retail investors that make up “the market” have somewhat loftier expectations from Nvidia, so the earnings beat and higher-than-expected guidance have not been as impressive as they might seem when compared with analysts’ expectations.
- The somber commentary on China: While Nvidia sounded upbeat in its outlook, it was circumspect about the business in China following the U.S. chip export ban. The company’s CFO Colette Kress said that between 20%-25% of its Data Center revenues have been coming from products that are now subject to licensing requirements. She warned, “We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.”
U.S. Chip Export Restrictions are a Long-Term Challenge for Nvidia
While Kress said that Nvidia is coordinating with some customers in the Middle East and China to pursue licenses from the U.S. government, she said, “It is too early to know whether these will be granted for any significant amount of revenue.”
She also sounded somewhat pessimistic about the long-term trajectory of Nvidia’s business in China, adding, “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.”
Previously, Nvidia has cautioned that U.S. chip export restrictions would jeopardize its long-term competitiveness in the Chinese market. Notably, the U.S.-China rivalry – which seems like the “new Cold War” – is a potent risk for companies with significant exposure to the mainland.
What Should Investors Do After NVDA’s Earnings?
Nvidia has been a stellar wealth creator for investors, and has capitalized on multiple emerging growth opportunities – the most recent being the artificial intelligence (AI) pivot. While there are fears about the sustainability of Nvidia’s revenues from the sales of high-end AI chips – including premium pricing – the company has defied pessimism so far.
Overall, I believe that if you are a growth investor looking to play themes like AI, the metaverse, and autonomous driving, Nvidia is one name that should be a part of your portfolio. The company has gotten the better of its competitors over the years, and I have no reason to believe that things will change anytime soon.
On the date of publication, Mohit Oberoi had a position in: NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
