Nvidia’s earnings report shows problem of being priced for perfection

Nvidia reported its fourth-straight quarter of triple-digit revenue growth on Wednesday, sailing past estimates on the top and bottom line while also issuing a forecast that topped Wall Street expectations. The company even bolstered its buyback program with a plan to repurchase $50 billion in shares.

But the stock dropped 7% in extended trading.

That’s life for Nvidia, which has ridden the artificial intelligence boom to a $3 trillion market cap, soaring almost nine-fold since the end of 2022 and surpassing every public company other than Apple in valuation. (It topped Apple for a stretch in June.)

In addition to reporting 122% annual revenue growth on Wednesday to over $30 billion, Nvidia said sales in the current period will jump about 80% to roughly $32.5 billion. Analysts were expecting close to $32 billion.

However, Stacy Rasgon, an analyst at Bernstein, told CNBC before the report came out that “buyside whispers” were closer to $33 billion to $34 billion, meaning Nvidia would have to dramatically surpass analyst estimates in its guidance in order to see a pop.

Rasgon, who recommends buying shares of the chipmaker, said there are no indications that demand is waning for Nvidia’s graphics processing units (GPUs), the core infrastructure for developing and running AI models.

“There’s still a ton of demand,” Rasgon said on CNBC’s “Closing Bell.” “They’re still shipping everything that they can sell.”

Nvidia said it expects to ship “several billion dollars” worth of Blackwell revenue in the fiscal third quarter, which ends in October. Blackwell is the company’s latest generation of technology, following Hopper. There had been some concerns that Blackwell would be delayed, but CFO Colette Kress said on the call with analysts that “supply and availability have improved.”

Still, “demand for Blackwell platforms is well above supply, and we expect this to continue into next year,” Kress said.

Other than missing the “whisper” numbers, some investors may be looking at Nvidia’s gross margin, which slipped a bit in the quarter to 75.1% from 78.4% in the prior period. That’s up from 43.5% two years ago and 70.1% in the fiscal second quarter of last year.

For the full year, the company said it expects its gross margin to be in the “mid-70% range.” Analysts were expecting full-year margin of 76.4%, according to StreetAccount.

On the earnings call, analysts asked Nvidia executives about customers and whether they’re making money on their investment. Following the company’s prior report, Kress gave investors data points showing that a cloud provider could make $5 over four years selling access to $1 of Nvidia chips.

This time, Nvidia took a different approach. CEO Jensen Huang said on Wednesday’s call that Nvidia’s technology will be taking work…