Nvidia Stock Drops Despite Strong Earnings and Guidance

• Nvidia stock dropped sharply on Friday this week.
• The retreat happened even after it released strong financial results.
• There are concerns about the competition in the GPU industry.

Nvidia stock jumped sharply, reaching its highest level since June 2nd, after releasing strong financial results. It then lost momentum and dropped to $217, its lowest level since August 21.

This article explores some of the top reasons why the stock plunged on Friday even with its strong earnings.

Nvidia published strong financial results and provided one of the best forward guidance metrics in the world. These numbers showed that its revenue jumped to $96 billion in the second quarter. That’s higher than the guidance it provided when it published in the first quarter.

Most importantly, its guidance was much higher than what even the most bullish analysts were expecting. For example, it now expects its third-quarter revenue to jump to $106 billion.

It also expects that the next year’s revenue growth will be over 70%. In contrast, analysts were expecting it to jump by 44%. Historically, Nvidia has always been highly conservative, meaning that its real figure will be higher than its guidance.

As a result, analysts had no choice but to boost their stock targets. Evercore’s Mark Lipacis hiked his target to $465, while Raymond James’ Simon Leopold hiked the target from $352 to $515. UBS hiked from $280 to $300. Oppenheimer, Citigroup, and Morgan Stanley hiked to $315.

There are a few reasons why the stock dropped despite the strong financial results. First, the decline happened on the same day that Kevin Warsh, the Federal Reserve Chair, delivered a hawkish statement at the Jackson Hole Symposium.

In his statement, he maintained that inflation was still so high and that the Fed would do its best to bring it to 2%. As a result, American investors dumped risky assets like stocks and crypto.

Nvidia also dropped as investors sold the news. It is common for assets to jump ahead of a major event and then pare back some of those gains when the event happens eventually. In this case, Nvidia shares popped to $230, close to its all-time high, and then dropped as investors sold the news.

Most importantly, there are concerns about the rising competition in the chip industry.OpenAI has released its chip known as Jalapeno. In a statement this week, the company said that its chip was beating Nvidia’s Blackwell in key metrics.

This is important because OpenAI is one of the biggest consumers of Nvidia GPUs. As a result, the success of its chip means that it will not need to spend as much money on Nvidia’s chips in the future.

The only risk that OpenAI faces is that Nvidia is a big investor. Recently, the firm also announced its financial backstop for a large data center in Ohio. That data center will use Nvidia’s GPUs.

In addition to OpenAI, other companies like Microsoft, Google, and Amazon are working on their GPUs. Google recently announced that it would expand its deal with Marvell to boost the production of its TPU chip.

The daily chart shows that the NVDA stock was in a downward trend before the earnings report. It then formed a big up-gap after its results, reaching a high of $230. It is now attempting to fill that fair value gap.

On the positive side, the company sits above the 100-day moving average, a sign that bulls remain in control. It also dropped below the Major S/R pivot of the Murrey Math Lines tool.

Therefore, the stock will likely be highly volatile before resuming its bullish trend. In this, it may drop to the ultimate support and then rebound to the all-time high of $236 and above.

The post Here’s Why Nvidia Stock is Falling Despite Strong Earnings and Guidance appeared first on The Market Periodical.