Investors currently have huge expectations for companies involved in artificial intelligence. Nvidia, whose shares have risen by over 160% since the beginning of the year, presented its second-quarter results. Despite exceeding analysts’ forecasts, share prices are falling by almost 7%. The results, although very good, did not meet investors’ expectations, writes eToro analyst for Czech Republic, Pawel Majtkowski.
The results published yesterday show that the demand for AI solutions remains strong. The company’s revenue increased by 122% year over year, reaching $30.04 billion, and data center revenues rose by 154% to $26.3 billion, significantly surpassing previous estimates. Nvidia also announced an additional $50 billion share buyback program and projected continued revenue growth in the coming quarters. The company also boasted a cash reserve of $34.8 billion.
The Nvidia report portrays a company fully leveraging the AI revolution. Other major tech players, such as Meta, Microsoft, and Alphabet, are investing huge sums in artificial intelligence development. These funds significantly flow into Nvidia’s portfolio, which holds an almost monopolistic position in the microprocessor market for these applications. Additionally, after earlier concerns about possible delays, the company anticipates revenues in the billions of dollars from the new series of Blackwell chips.
Although Nvidia’s results once again exceeded analysts’ expectations, investors were hoping for even better results. The 161% increase in stock price since the beginning of the year makes expectations for the company nearly impossible to meet. As a result, the company’s shares are currently down by almost 7% in pre-market trading, as the U.S. stock market has yet to open.
It is worth noting that Nvidia is the third most valuable company in the world, although it is growing at a rate more typical of growth companies with medium or small capitalization. This unusual combination of scale and growth requires caution. Nvidia shares are highly valued, especially compared to the broader market. The forward P/E ratio (price to earnings) is 47.60, while the average for the S&P 500 index is 22.48. To make this valuation more attractive, a price drop or higher profit forecasts would be needed.
One thing is certain: artificial intelligence is not a passing trend. Nvidia is already generating significant revenues as numerous companies invest large amounts in AI chips and technologies or upgrade existing systems. Global AI spending is expected to reach $632 billion by 2028, and Nvidia, as a pioneer in graphics processors, is at the forefront of this trend.
Nvidia is the second most widely held stock by eToro users globally and the fifth most held by Romanian investors last quarter.
