NVIDIA Corp. (NASDAQ:NVDA) is regarded as one of the best performing stocks since Donald Trump’s election win, but it has fallen by nearly 7% in after-hours trading following the company’s second-quarter earnings announcement.
The tech firm reported stronger-than expected earnings during the period, driven by robust revenue growth and improved gross and operating margins.
Excluding certain items, NVIDIA posted earnings of $1.01 per share, up 91% on a yearly basis and exceeding the average analyst estimate of 70 cents per share. Revenue rose 56% year on year to a record $2.23 billion, fueled by growth in GPUs for gaming, datacenter, professional visualization as well as Tegra processors. Datacenter revenue led the way with 175% year-over-year growth, while gaming revenue rose 52%.
NVIDIA’s stock has skyrocketed in the past year, rising 191% as the S&P 500 index has increased 13.8%. Sentiment surrounding the company also continued be positive over the past months. Canaccord Genuity increased its estimates for NVIDIA “yet again” as it expects continuing strength in the automotive and gaming markets. NVIDIA also received ratings upgrades from both SunTrust Robinson Humphrey and Pacific Crest, while Jeffries maintained a buy rating.
But why the strong reaction to the stock?
Ahead of NVIDIA’s earnings release, Citron Research analyst Andrew Left told CNBC’s Fast Money that he shorted the stock, deeming that the time has come for a drop. “This stock has run way too far, too fast,” according to Left. Left also noted that he procured some call options for insurance in case he is mistaken in his view. Meanwhile, Bernstein Research analyst Stacy Rasgon said that the data center figure was somewhat disappointing amid rapidly growing expectations. “Given the stock performance recently and where expectations were, letting some air out isn’t a huge surprise,” Rasgon told Forbes in an interview.
With regards to guidance, NVIDIA said it expects to report revenue of $2.35 billion in its fiscal third quarter, plus or minus 2%. Analysts, by contrast, were estimating guidance of $2.13 billion. NVIDIA could realize gains in the upcoming quarter as it increases sales of its Volta Tesla V100 GPUs. The shipment of these GPUs began in the previous quarter. “Nearly every industry and company is awakening to the power of AI. Our new Volta GPU, the most complex processor ever built, delivers a 100-fold speedup for deep learning beyond our best GPU of four years ago,” CEO Jensen Huang said.
NVIDIA is trading at $164.74 per share in pre-market trading, down 4.28%.