Nvidia stock dips after earnings, is a major bounce on the horizon?

Nvidia shares dipped 6% after earnings on Wednesday despite beating Wall Street estimates of $28.7 billion and 64 cents earnings per share, to record $30.04 billion and 68 cents earnings per share. 

Despite the uptick in earnings, it failed to meet the lofty expectations of investors who are accustomed to steeper revenue increases as had been seen in previous quarters as year-on-year comparisons showed decelerating revenue growth.

Source: LSEG

This deceleration, combined with uncertainties surrounding the long-term trajectory of the generative AI boom, cast a shadow of doubt on the sustainability of Nvidia's remarkable growth story.

The slight delay in the launch of Nvidia's highly anticipated Blackwell chips also raises concerns about potential production challenges and their impact on future revenue streams. While the company remains confident in its ability to ramp up production and meet demand, any further setbacks could further dampen investor sentiment and lead to shorting.

The competitive landscape also demands some attention, with rivals like AMD making strategic moves to expand their presence in the AI chip market, not to mention new market entrants D-Matrix who are looking to replace the GPU-based chip with a “first-of-its-kind”, cheaper alternative. Although Nvidia currently enjoys a dominant position, the increasing competition could potentially erode its market share and put pressure on its profit margins in the long run.

Is a major bounce on the horizon?

Despite growth concerns and a more competitive environment on the horizon, Nvidia remains head and shoulders above rivals in the chip market and an AI forerunner, with strong revenues every quarter. Nvidia's future prospects remain promising as well suggesting that a significant stock bounce could be in the offing.

The company's data center business, the primary engine of its success, continues to experience robust growth, driven by the increasing adoption of AI across diverse sectors. The company also anticipates strong demand for its upcoming Blackwell chip, which is expected to generate substantial revenue in the forthcoming quarters.

The company’s strategic initiatives, including a substantial share buyback program and a focus on optimizing production yields, underscore its unwavering confidence in its long-term growth trajectory. The ongoing investments in AI infrastructure by major tech companies further reinforce the sustained demand for Nvidia's powerful GPUs. 

The company's CEO remains optimistic about the future, emphasizing the diverse applications of its chips beyond just AI chatbots and highlighting the potential for widespread adoption of GPUs in data centers, powering everything from ad targeting and search engines to robotics and recommendation algorithms.

Nvidia's commitment to innovation is another key factor bolstering its future prospects. The company has pledged to release a new AI chip architecture annually, a significant acceleration from its historical two-year cadence. This rapid innovation cycle, coupled with the introduction of new software designed to further entrench its chips in AI software, positions Nvidia to maintain its technological leadership and stay ahead of the competition. 

This shift to a one-year release cadence presents a potential challenge for rivals like AMD and Intel, who currently operate on a two-year cycle. While competitors like AMD have made strides in performance, Nvidia's accelerated release schedule and comprehensive software ecosystem provide a significant advantage. 

Technical outlook: A bounce back to 130?

At the time of writing, the stock is hovering at $125.56, and has recently been trading within a consolidating range. After opening lower, traders will be looking for signs of a bounce back as the daily chart retains a bullish picture with prices still well above the 100-day moving average. RSI edging down softly at around 60 suggests that upward momentum is slowing down possibly due to profit taking. 

Buyers could find resistance at the $126 price level, with a decisive breakout likely to pause at the $130 mark. On the downside, a further slide could be held at the $120 mark, with a breach below that area likely finding support around $116.31.

Source: Deriv MT5

Disclaimer:

The information contained within this article is for educational purposes only and is not intended as financial or investment advice. 

It is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information. 

The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance. 

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