NVIDIA's stock fell more than 5% on Thursday after the company reported fiscal fourth-quarter profits that exceeded expectations. This decline occurred even as the chipmaker posted quarterly revenue of $43 billion. Morgan Stanley's Joseph Moore described the performance as a historic instance of "earnings beat and guidance raise" for a semiconductor company. NVIDIA's revenue surpassed forecasts by approximately $3 billion, while its forward guidance exceeded analysts' projections by about $5 billion.
The magnitude of this outperformance may have been anticipated, as NVIDIA's major hyperscale customers recently increased their capital expenditure forecasts, signaling a continued surge in chip spending. Moore noted that while the muted stock reaction is surprising, the debate surrounding NVIDIA's shares is "fundamentally long-term in nature."
Despite raised capital expenditure forecasts, investors have expressed concerns about the sustainability of artificial intelligence spending. Moore indicated that, based on investments to date, free cash flow generation for hyperscalers appears "under significant pressure." However, he remains less concerned, stating that hyperscalers are demanding greater computing power. Although cost presents a challenge, the demand is driven by a shift toward inference—running AI models—which is expected to eventually translate into revenue. Moore stated in his Thursday report that the long-term outlook "looks pretty good."
According to Moore, more significant catalysts for NVIDIA's stock price may be CEO Jensen Huang's upcoming keynote at the Morgan Stanley Technology Conference and the company's annual GTC event in March. Investors will be looking for further details on the product roadmap, including updates on the Vera Rubin chip platform and the subsequent Feynman architecture.
Bernstein analyst Stacy Rasgon mentioned he is "unsure what else investors want to hear at this point," but with demand for NVIDIA's products showing "no signs of slowing," buyer expectations for 2027 "appear quite reasonable." He specifically pointed out that some buyers anticipate NVIDIA could achieve earnings per share of $12 or more in the next calendar year, compared to the FactSet consensus estimate of around $10.
Meanwhile, NVIDIA is also affected by rising memory chip prices due to supply shortages. NVIDIA's chips require significant memory, and strong demand amid tight supply conditions has driven up industry-wide prices. TD Cowen analyst Joshua Buchter noted in a Wednesday report that NVIDIA's "confident but conservative messaging around its 75% gross margin" should be positive news for investors. He added that the company likely secured its memory supply and pricing ahead of the supply constraints.
Buchter expressed some confusion over the recent weakness in NVIDIA's share price, particularly as software stocks have declined. He wrote, "Just to highlight one oddity—in our view, it is strange that software stocks appear to be pricing in an existential recession, while the underlying hardware enabling that future outcome is pricing in a rapid demand decline."
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