As the Nvidia share price tumbles 8%, is this my time to invest?

The Nvidia share price is set to open lower today after the company’s Q2 earnings report, making me wonder if this could be a good time to invest.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Nvidia (NASDAQ: NVDA) share price fell as much as 8% in after-hours trading yesterday (28 August). This was after the AI-enabling juggernaut reported its hotly anticipated earnings for the second quarter.

What was so bad about the numbers to cause this reaction? Let’s take a look.

Created with Highcharts 11.4.3Nvidia PriceZoom1M3M6MYTD1Y5Y10YALL29 Aug 201929 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

A double beat

Ahead of the results, there were some mind-boggling figures floating about. For example, Nvidia had driven more than a quarter of the S&P 500‘s year-to-date return. It had gained about $2.6trn in market value in 21 months (!) following the release of ChatGPT. The shares were up nearly 3,000% in five years.

Should you invest £1,000 in Nvidia right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nvidia made the list?

See the 6 stocks

As for the report, the chipmaker was expected to post its fourth straight quarter of triple-digit revenue growth. And it did, with record quarterly revenue of $30bn, up 15% from Q1 and 122% from a year ago.

Once again, this breezed past analysts’ expectations for $28.7bn in revenue. It beat on the bottom line too, posting adjusted earnings per share of 68 cents against an expected 64 cents. That was up 152% year on year.

Nearly all of this was driven by the data centre segment, which is where the AI action is taking place. But revenue in its gaming business — remember that? — increased 16% to $2.9bn.

CEO Jensen Huang commented: “Nvidia achieved record revenues as global data centres are in full throttle to modernise the entire computing stack with accelerated computing and generative AI…Across the entire stack and ecosystem, we are helping frontier model makers to consumer internet services, and now enterprises. Generative AI will revolutionise every industry.”

Why’s the stock down then?

Looking ahead to the third quarter, Nvidia anticipates revenue of $32.5bn, give or take 2%. However, that was ‘only’ at the midpoint of what analysts were expecting.

Meanwhile, for the full year, the company sees its gross profit margin in the “mid-70% range“. That was a bit below where Wall Street previously saw it landing.

From here, Nvidia’s year-on-year comparisons are likely to normalise and be far less eye-popping. Slowing growth was inevitable.

Stepping back, it seems the market is getting far tougher to please. It’s less dazzled by the AI-fuelled growth and has started nit-picking.

Still the AI king

Yet the AI revolution continues, driven onwards by massive spending on data centre infrastructure from deep-pocketed tech companies. Their commitment to create ever more advanced large language models requires more powerful AI chips. Nvidia still rules supreme here.

In the fourth quarter, it expects to start shipping a few of its next-generation Blackwell chips. These are a new class of AI superchip that will both increase performance and lower power consumption.

The anticipation for these is “incredible“, according to management.

Will I invest?

Nvidia’s unprecedented growth means it’s set itself an incredibly high bar. So it’s possible the share price could now be set for a period of drift over the coming months.

In a filing released along with its results, the firm revealed that four unnamed customers — thought to be Microsoft, Meta Platforms, Amazon and Alphabet — made up 46% of total revenue during the quarter.

That level of customer concentration could become a risk if AI capital expenditure starts to cool. For now, I’m going to watch the stock to see if there’s a bigger pullback than 8%.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

2 surging FTSE 250 shares to consider in March!

These FTSE 250 shares have soared in value over the past year. And Royston Wild thinks they could continue to…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£20,000 invested in the S&P 500 at the start of 2020 is now worth this much…

The S&P 500 index has been on fire in recent times, driven sharply higher by artificial intelligence and Donald Trump's…

Read more »

Investing Articles

Here’s the BAE Systems share price forecast for the next 12 months!

Rising defence spending has helped BAE Systems' share price to more than double since early 2022. Can the FTSE stock…

Read more »

Investing Articles

I asked ChatGPT to build me the perfect second income portfolio and here’s what it said

Millions of Britons invest to earn a second income, but with artificial intelligence getting better by the day, this Fool…

Read more »

Investing Articles

P/Es below 8 and dividend yields above 6%! 3 bargain UK shares to consider

Looking for cheap UK shares to buy today? Here are three terrific options, whose P/E ratios and dividend yields demand…

Read more »

Investing Articles

Down 16% in a month, is Tesla stock a falling knife?

Tesla stock has taken a tumble over the past few weeks. Christopher Ruane is itching to buy it at the…

Read more »

Close-up of British bank notes
Investing Articles

£9K of savings? Here’s how that could produce £108 a month in passive income

£9k could earn over £100 a month in passive income if invested in the right selection of blue-chip shares over…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Here’s how an investor could start buying shares like a billionaire – for £800

By learning some lessons from billionaire investors like Warren Buffett, a market newcomer could start buying shares on a limited…

Read more »