Nvidia shares fall after investors spooked by slowing growth

The stock of chip maker Nvidia dropped as investors became concerned about decreased growth and manufacturing difficulties, even though the artificial intelligence company reported a 122% increase in revenues for the second quarter compared to a year ago.

The tech company based in Silicon Valley saw its revenues double to $30 billion, surpassing the predicted $28.7 billion set by analysts. However, investors were worried about a potential decrease in growth, especially in regards to its upcoming AI chips known as Blackwell.

The company's stock dropped by 7% in early morning trading, but later rebounded to only a 3% decline. The technology company is ranked as the third most valuable globally, with a market capitalization of $3.1 trillion.

Nvidia announced that there will be a delay in the delivery of their Blackwell chips, which contain 208 billion transistors used for processing calculations to train their large language model. The delay is expected to be several months from the initial January timeframe. CEO Jensen Huang has indicated that Blackwell is projected to bring in significant revenue for the company this year.

Simon French, who is the top economist and leads the research division at the investment bank Panmure Liberum, mentioned to the BBC that there were slight indications in the data that the growth rate was starting to decline.

Their latest AI chip, known as "hopper", is doing well in sales. However, the upcoming generation called Blackwell has experienced some delays in production. This could be a contributing factor to why investors on Wall Street decided to sell off the stock after hours.

In discussions with investors and reporters last night, executives at Nvidia did not provide specific details about the length of the delay for Blackwell shipments. However, they mentioned that production problems have been resolved by TSMC, the semiconductor company in Taiwan that manufactures Nvidia's most cutting-edge chips. They also mentioned that initial samples are now being sent to a select group of customers.

The decrease in Nvidia's stock price negatively impacted the US markets, especially the S&P 500 index. Nvidia accounts for approximately 6% of the total value of the index and has been a significant contributor to its overall growth this year, following a more than 160% increase in the last 12 months.

Matt Britzman, an expert at the investment platform Hargreaves Lansdown, mentioned that Nvidia is currently dealing with a big challenge in living up to the high expectations. It is no longer enough to simply exceed estimates; now the market expects them to surpass by a large margin. Overall, it seems that the extent of Nvidia's success may have fallen a bit short of what was anticipated.

Although many investors believe in the potential of artificial intelligence to revolutionize various industries worldwide, French pointed out that there is still insufficient evidence to support its practical applications.

The expectations for this stock are very high, not only for the company itself but also for its overall impact on the economy," he explained. "If you set the bar that high, then you need to continue growing at impressive levels."

But, Britzman warned against putting too much emphasis on the market response, as investors tend to exaggerate the significance of one quarter's results, especially in the overall future of AI. Instead, he suggested that companies like Microsoft, Tesla, Meta (owner of Facebook and Instagram) were focused on long-term goals spanning years or even decades, and investors should consider adopting a similar mindset.

He stated: "The issue of getting a profit from investing in AI, which is often raised by skeptics, is not the primary concern for Nvidia's most important customers right now. Similar to previous situations, this process will not progress in a straight line. However, as long as the strategy of 'build it and they will come' persists, it will work in Nvidia's favor."