Nvidia NVDA Update recently reported its smallest revenue and EPS beat in 5 quarters, aligning with a broader trend among the "Magnificent Seven" stocks, which have faced declines following disappointing forward guidance.
Since the launch of OpenAI’s ChatGPT in late 2022, Nvidia’s revenue has surged fivefold over the past 7 quarters, with the stock appreciating by 760% through the August 28th, 2024 earnings release. Among the "Magnificent Seven" that have reported thus far, the average post-earnings decline has been 4%, primarily driven by lackluster guidance. Only $AAPL and $META delivered above-consensus revenue and EPS for Q2, coupled with upward revisions in forward estimates. Nvidia's post-earnings decline can be attributed to its modest 4% revenue and 5% EPS beats—the smallest in five quarters—coupled with minimal upward revisions for the next quarter.
These developments raise the probability of an imminent AI capex digestion phase within the next six to nine months. Although industry hyperscaler capex is projected to increase by ~50% in CY24, Nvidia’s revenues were up 262% year-over-year in CQ1:24 and 122% year-over-year in CQ2. Over the past 7 quarters, customers may have over-ordered GPUs due to supply chain constraints lagging demand. As emphasized by the CEOs of Google, Microsoft, and Meta, the greater risk lies in under-investing in AI rather than overspending. This implies that as supply catches up with demand, much like the post-COVID adjustment period, we could witness a sharp correction. A slowdown in capex growth to around 10% or lower in the coming year wouldn’t be surprising. In conclusion, I anticipate a digestion phase to commence within the next six to nine months, followed by a sustained AI buildout over the ensuing years. Despite Thursday’s mild pullback, NVDA's technical structure remains largely intact, potentially presenting a strategic entry point for investors.
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