:max_bytes(150000):strip_icc()/GettyImages-2247653106-00c2d8b303174924845d82b33437ba41.jpg "Do Nvidia Earnings Put Fears of an AI Stock Market Bubble To Rest?")
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Key Takeaways
- Wall Street analysts were encouraged by Nvidia’s earnings report, with many saying the strong results would likely relieve some of the recent pressure on AI stocks.
- Nvidia’s earnings illustrated that demand for AI infrastructure remains exceptionally strong, which some argue will support AI stocks.
- Skeptics argued that Nvidia’s growth is itself evidence of a growing AI bubble.
A lot hinged on Nvidia’s (NVDA) earnings report, and the AI chip giant didn’t disappoint.
“These results and commentary should help steady the ship for the AI trade into the end of the year,” wrote Jefferies analysts in a note on Thursday.
The late-Wednesday report from the company at the center of the AI boom came at a precarious time for the AI rally. The debate about whether AI stocks were in a bubble reached a new level of intensity in recent weeks, driven by concerns about the size of the tech sector’s data center spending, the longevity of AI infrastructure, and the nascent technology’s commercial potential.
The market’s reaction on Thursday demonstrated that the debate is far from settled. The tech-heavy Nasdaq Composite soared more than 2% early in the session, before sliding to trade down nearly 2% in the afternoon. Nvidia stock, which jumped 5% Thursday morning, was recently down almost 3%. (Read Investopedia’s markets coverage here.)
Why This Matters to Investors
AI stocks have been pressured in recent weeks by concerns about overvalued stocks and uncertain returns on investment. Wavering AI sentiment threatens to undermine one of the driving forces behind the bull market of the past three years.
What Did Markets Like in Nvidia’s Earnings?
The sheer strength of Nvidia’s results helped ease Wall Street’s AI bubble fears on Thursday.
Nvidia reported revenue soared 62% to $57 billion last quarter, and projected sales would climb to $65 billion in the current quarter. Gross margins improved from Nvidia’s previous report, and are expected to widen to nearly 75% this quarter.
“Bubbles are irrational, with prices rising despite weaker fundamentals. Nvidia’s numbers show that fundamentals are still strong,” said David Russell, Global Head of Market Strategy at TradeStation.
Additionally, executives on the company’s earnings call addressed investor concerns about AI’s return on investments, monetization prospects and infrastructure longevity.
CEO Jensen Huang emphasized the wide range of applications Nvidia chips are powering, and cited social media giant Meta’s (META) improving ad conversions as evidence that “transitioning to generative AI represents substantial revenue gains for hyperscalers.”
“Thanks to CUDA,”—Nvidia’s accelerated computing programming interface—“the A100 GPUs we shipped six years ago are still running at full utilization today,” said CFO Colette Kress. The comment may have been a response to hedge fund manager and AI boom skeptic Michael Burry, who recently accused tech companies of arbitrarily extending the on-paper life expectancies of their GPUs to understate the cost of their data center buildouts.
Now What?
Most of Wall Street agreed on Thursday that the outlook for Nvidia is rosy.
“On these numbers, it is very hard to see how this stock does not keep moving higher from here,” said UBS analysts. “Ultimately, the AI infrastructure tide is still rising so fast that all boats will be lifted,” they added.
But some market watchers remain concerned.
“The AI bubble debate has never been about whether or not NVIDIA can sell chips,” said Julius Franck, co-founder of AI company Vertus. “Their outstanding results do not address the elephant in the room: will the customers buying all this hardware ever make money from it?”
Others noted investors may need to be more discerning if skepticism of the AI boom persists.
“Many of the risks now worrying investors, like heavy spending and asset depreciation, are real,” said TradeStation’s Russell. “We may see continued weakness in the shares of companies taking on debt to build data centers, even as the boom continues.”
