Why you should not expect Nvidia to keep growing exponentially

Chip giant, Nvidia announced its second-quarter earnings Thursday last week but despite posting impressive numbers, its share dipped 6%. The decline was primarily attributed to a slight dip in gross margins and a broader context of increasingly high market expectations from the chip giant.

Nvidia reported revenue of over $30 billion for the July quarter, marking a staggering 122% year-on-year growth. Even more impressive, it was the fourth consecutive quarter of triple-digit revenue growth for the tech giant, underscoring its dominant position in the booming artificial intelligence (AI) sector. However, as Nvidia's expansion continues, the annual comparisons are becoming more challenging.

The company's guidance for the fiscal third quarter further highlighted this dynamic. Nvidia projected revenue of $32.5 billion, which would represent an 80% increase year-over-year but signal a deceleration from the July quarter's performance. Meanwhile, Nvidia's gross margins for the full year are expected to be in the "mid-70% range," slightly below the 76.4% forecast by analysts surveyed by StreetAccount.

Analysts noted that Nvidia would have needed to exceed expectations across all metrics by a significant margin to maintain upward momentum in its stock price. The pullback on Thursday also follows a meteoric rise in Nvidia's shares, which have surged more than 150% year-to-date and over 750% since the start of 2023. The stock's extraordinary gains have been fueled by large technology companies ramping up investments in Nvidia's graphics processing units to train expansive AI models.

The decline in Nvidia's stock also had a ripple effect across the semiconductor industry, with shares of major players like Samsung and Taiwan Semiconductor Manufacturing Co. also experiencing downturns on Thursday.

Amid these developments, Nvidia sought to address concerns regarding reported delays to its next-generation Blackwell AI chip during its earnings call. "In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue," stated Nvidia's Chief Financial Officer Colette Kress, aiming to reassure investors.

In addition to its earnings report, Nvidia announced a substantial $50 billion stock buyback program, further reflecting its confidence in the company's long-term prospects.