What Happened: Shares of leading graphics chip designer Nvidia (NASDAQ:) fell 10% in the afternoon session after the major indexes fell, with the Nasdaq down 2.1%, while the S&P 500 fell 0.9% . Netflix (NASDAQ:) reported mixed results to kick off the new earnings season. The video streaming giant gave disappointing full-year sales figures and expected growth to slow in the second half of the year. Also, Netflix has surprisingly announced that it will stop disclosing its subscriber count (starting in the first quarter of 2025), adding to the market’s concerns about the company. The drop in share prices after the earnings report is likely to dampen sentiment towards technology stocks.
It has been a challenging week for most risk assets, following news of escalating tension between Israel and Iran, raising concerns among investors given the potential disruptions to corporate supply chains, especially in the Middle East.
These add to ongoing inflation concerns after the March 2024 CPI (Consumer Price Index – a measure of the average price consumers pay for goods and services) report showed inflation was slightly higher than expected. On April 16, 2024, Fed Chairman Jerome Powell echoed a similar sentiment, adding, “Recent data clearly has not given us more confidence, but instead indicates that it will likely take longer than expected to achieve that confidence. ” This suggests that the Fed may not cut its policy rate as quickly as expected in 2024, as markets price fewer rate cuts for that year.
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As a reminder, the driving force behind a stock’s value is the sum of its future cash flows, discounted to today. Lower interest rates allow investors to apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to unfavorable outcomes. In times like these, it’s best to own high-quality, cash-flowing businesses that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can provide good opportunities to buy high-quality stocks. Is Now the Time to Buy Nvidia? Find out by reading the original article on StockStory.
What the market tells us: Nvidia stock is highly volatile, having seen nine moves of more than 5% in the past year. In context, today’s move indicates that the market sees this news as meaningful, but not as something that would fundamentally change its perception of the company.
The biggest move we wrote about in the past year came 11 months ago, when the stock rose 23.7% on news that the company had an exceptional quarter that beat analyst estimates on key metrics. Revenue exceeded expectations by as much as 10.3%, thanks to strong data center revenue. Notably, the company improved profitability, with both gross margin and operating margin performing better than expected. Earnings per share (EPS) beat an impressive 18.8%. Inventory levels saw a nice decline during the quarter. In addition to the excellent quarterly results, revenue expectations for the next quarter exceeded expectations by more than 50%. Yes, that’s not a typo. Similarly, operating profit expectations significantly exceeded consensus estimates.
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Founder and CEO Jensen Huang highlighted the ongoing transformations in the computing industry, especially advances in accelerated computing and generative AI. He highlighted Nvidia’s readiness to seize the opportunities presented by the expected trillion-dollar shift in global data center infrastructure from general purpose to accelerated computing as companies implement generative AI into their operations.
Overall, the company’s blowout quarter, with its impressive revenue growth, improved profitability and positive guidance, underlined its strength in the market. Nothing in this world is perfect, but this was an almost perfect quarter.
Nvidia is up 58.8% year-to-date, but at $764.31 per share is still trading 19.5% below its March 2024 52-week high of $950.02. Investors who bought it five years ago bought $1,000 worth of Nvidia stock would now be looking for an investment worth $16,239.
