Why Did Nvidia's Stock Fall After It Beat Earnings Expectations, and is it a Buying Opportunity?

Nvidia reported quarterly Financial results when markets closed on Wednesday August 28th that blew past expectations management forecasted revenue of $28 billion for the Recently completed quarter and they delivered $30 billion instead that led to a better than expected forecast for the next quarter of $32 billion in Revenue so what gives why is the stock price down by more than 8% in the after hours Market following these better than expected results the price reaction I think has more to do with the upcoming black roll product nvidia's launching in steps investors were disappointed with the timeline which is ramping up slower than expected that will lead to lower than expected revenue and profit for nvidia's fourth quarter I'm going to discuss all of those factors I just mentioned in more detail in the video and update my buy recommendation of Nvidia stock if you're new to the channel I've had an Nvidia stock rated as one of my top stocks to buy all year long in 2024 so tune in to see if I'm changing that recommendation for Nvidia stock following these latest Financial results I want to thank the mly fool for sponsoring this video visit full.com parev for the 10 best stocks to buy now like I mentioned nvidia's second quarter Revenue came in at30 billion and4 that was up 122% % year-over-year nvidia's gross profit margins came in at 75.1% up by 5 percentage points from the same quarter last year and as I highlighted at the top of the video Nvidia was forecasting second quarter fiscal year 20125 revenue of $28 billion and gross profit margins in the range of 74.8% and 75.5% so nvidia's revenue of $30 billion was $2 billion more than what they were forecasting the gross profit margin of 75.1% was in the range that they were forecasting so that was as expected but the revenue number was $2 billion more than they were forecast nvidia's operating income jumped to 18.6 billion and that was up by 174% year-over-year if you divide nvidia's operating income by its Revenue you'll notice Nvidia is generating nearly 66% of operating profit margins 20 billion and operating income would be 66% so their operating profit margin is astronomical it's among the best of the best so not only is nvidia's revenue soaring by over 100% its operating income is soaring by over 100% as well Nvidia is firing on all cylinders with Revenue growing profits growing and cash flow increasing as well so it's not surprising that Nvidia stock price has performed so well year-to date in 2024 Now nvidia's growth is being fueled by the rising effectiveness of artificial intelligence which is creating a surge in demand from the hyperscalers of cloud computing like Microsoft and Amazon and alphabet and meta platforms to spend money building these AI data centers nvidia's data center revenue is where all the growth is coming from or I should say the bulk of the growth is coming from 26.27 billion in data center Revenue was up by by 154% year-over-year and if you look at its other segments like gaming visualization automotive and other those are up but not nearly as much 16% 20% 37% and 33% respectively so the entire company is growing but nowhere near the amount of growth that the data center segment is driving nvidia's CFO saying that the strong sequential and year-on-year growth was driven by demad for their Hopper GPU computing platform for training and influencing large language models recommendation engines and generative AI cloud service providers represented roughly 45% of their data center revenue and more than 50% stemmed from consumer internet and Enterprise companies that 45% concentration among its top four or five customers is a very high concentration and that's up from the previous quarter where it was roughly 40% so nvidia's Revenue became more concentrated in the most recent quarters compared to the quarter before that although nvidia's management has said that demand for its products are broad-based it's focusing its efforts towards serving these hyperscale customers because they're such large buyers but Nvidia keeps saying that demand for its products exceeds Supply so in the case that these hyperscalers reduce their spending Nvidia is hinting that they have other customers that will step up and take the demand although that remains to be seen so far everything we've SE seen from Nvidia looked like great news but if you look at the after hours price action for Nvidia stock it's down 8.86% in the after hours trading following the release of these earnings results so why is the stock price down if those results were so good and it has to do with this next thing I'm going to highlight now so nvidia's CFO saying that they shipped customer samples of their Blackwell architecture in the second quarter and they executed a change to the Blackwell GPU mask to improve production yield Blackwell production rap is scheduled to begin in the fourth quarter and continue into fiscal 2026 in the fourth quarter they expect to ship several billion dollars in Blackwell revenue and so this confirmed rumors that came out a couple of weeks ago if you watch that video I did about these rumors where an analyst came out and suggested that nvidia's Blackwell rollout will be delayed because they're making a change to the technology they're making a change to the product and that turned out to be true true Nvidia saying they did change the they made a change to the Blackwell GPU mask to improve production yield and because of that change the ramp is going to be slower than expected and they're going to get a couple of billions of dollars in Blackwell Revenue in the fourth quarter and then the RP will really begin in the first quarter of their fiscal year 2026 where it'll probably jump closer to 10 or tens of billions of dollars and so that delay is likely to cause fourth quarter Revenue to be lower than expected and fourth quarter profit to be lower than expected even though the companies management did say they are going to ship more of the hopper technology the older generation technology product that was so popular in the current quarter they're going to ship more of those instead of the Blackwell in Q4 still the Blackwell has been rumored to be higher priced and with higher profit margins and so the replacement of Blackwell with hopper technology is likely to weigh on overall average revenue per customer average revenue per unit and average profit per unit and so that's what investors are responding to most notably following nvidia's earnings release because other than this tiny well I shouldn't say tiny other than this this delay almost everything else looks really really strong and so investors are really focused on this and it's because Nvidia stock price is incorporating so much excellent future prospects that any sign that their future prospects is not as excellent as expected is bringing down envidia stock price and that's understandable I mentioned heading into these earnings results that if Nvidia did confirm those rumors for Blackwell and a delay in Blackwell that it would bring down nvidia's stock price and that is indeed what we saw even though they delivered Revenue much better than I was expecting in this quarter the delay to the Blackwell architecture the change in The Mask to improve yield did bring down investor enthusiasm for Nvidia stock cash flow from operations were excellent 14.5 billion was up from 6.3 billion a year ago up from 6.3 billion a year ago so they more than doubled their cash flow from operations up to 14.5 billion they're generating so much cash it's too much to reinvest in the business the company's returning Capital to shareholders they bought back $7.5 billion of their own stock in the quarter and on August 26 2024 the board of directors approved an additional $50 billion of share BuyBacks for NVIDIA that's a massive buyback program and I guess it's now putting Nvidia with their company in these large cap Tech businesses right alphabet announces BuyBacks of this magnitude Apple announced a buyback upwards of $100 billion so Nvidia is starting to behave like a several multi-trillion dollar company now that it's generating these levels of cash flow it can facilitate these levels of BuyBacks looking ahead third quarter Revenue expected at forecasted at 32.5 billion was much better than I was expecting remember in the preview video I highlighted that they're likely going to forecast something in the range of 30 to 32 billion 32 and a. half billion is above the higher higher end of the range that I was expecting and the gross profit margin of 74.4% to 75% would be an increase from the prior year but not by all that much and that makes sense nvidia's profit margins are already world class I don't suspect their profit margins to go up from here if they can just sustain their profit margins at anywhere near these levels for the next four to eight quarters I think investors would be satisfied that being said nvidia's Revenue growth rate is starting to slow down finally right if Nvidia does indeed deliver 32.5 billion in revenue for its third quarter of fiscal year 2025 that would be less than 100% growth from the 18 billion they reported in the same quarter the prior year it would still be a massive increase right $14 billion more than the same quarter last year and gross profit margin improving from the 74% they are now forecasting in the range of 74 let's say 74.7% at the midpoint that would be higher than the amount they reported in the same quarter last year so continued phenomenal Revenue growth expected although it is slowing down decelerating as I've been talking about nvidia's Revenue growth is not going to sustain at above 100% it's going to slow down it's going to decelerate following these surging Revenue numbers the company delivered in these last 6 to 9 quarters ever since the Boom in demand for artificial intelligence so following the stock price decrease Nvidia is now trading at a forward price to earnings of 32.8 lower than it was trading at at the peak levels earlier this year but higher than when it was earlier in the year now as I mentioned at the top of the video I've had nvidia's stock rated as one of my top stocks to buy all year long in 2024 I last updated that recommendation on July 1st and following these earnings results following these numbers I'm reiterating my recommendation of Nvidia as a top stock to buy I liked almost everything I saw from the company this quarter the only downside was the roll out of the Blackwell technology later this year probably skewing spilling over into its next fiscal year that was the only downside but then now the price is about 9% lower so you're getting an offsetting factor of a lower price to compensate for the delayed roll out all in all I still like Nvidia stock I still think it's an excellent long-term investment Before I Let You Go let me tell you about the greatest deal on YouTube with just a click of a button you can get free 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