Stock Story -
What Happened: Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 5.9% in the afternoon session after peer, AMD (NASDAQ:AMD), reported reported first quarter results which highlighted a material increase in its inventory levels. In addition, AMD's guidance for the next quarter was underwhelming as revenue projection was mostly in line with Wall Street's projections.
Super Micro Computer, another beneficiary of the current AI wave, reported underwhelming earnings as revenue fell below Wall Street's expectations, with the company calling out supply chain challenges.
Like AMD, Super Micro provides data center infrastructure (servers, GPUs, and storage solutions) that power AI models. These include customized cooling racks that enable AI models to deliver better performance.
Overall, the underwhelming results and mixed outlook provided by these semiconductor players suggest the era of hypergrowth that has propelled the valuation of some of the leading innovators in the AI space might be cooling off as investors become increasingly cautious.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Nvidia's shares are very volatile and over the last year have had 11 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago, when the company gained 6.2% as markets rallied, with the Nasdaq up 2.1%, while the S&P rose 1.1%, following strong earnings from big tech companies including Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Alphabet (NASDAQ:GOOGL). Notably, the earnings highlighted the strong demand for AI solutions, including cutting-edge AI chips that power most AI applications. These chips are developed by Nvidia and its peers.
For example, during its Q1'2024 earnings call, Meta raised its forecasted operating expenses and capital expenditures for the full year. The increased costs are related to the company's AI infrastructure. It also released its AI assistant, Meta AI. This product was rolled out across its family of apps and is powered by Llama 3, an open-source large language model that is a ChatGPT competitor.
Also, during its earnings, Microsoft noted that its operating cash flow was impacted by higher capital expenditures to support cloud and AI offerings, and guided for "capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments." Lastly, Alphabet struck a similar tone, adding during its earnings, "You can see that from the increases in our capital expenditures. This will fuel growth in cloud help us push the frontiers of AI models."
Overall, the future looks promising for Nvidia as it continues to meet growing market demand within the AI space.
Nvidia is up 72.3% since the beginning of the year, but at $829.38 per share it is still trading 12.7% below its 52-week high of $950.02 from March 2024. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $18,394.