Nvidia's financial results again exceeded even the most optimistic forecasts. Despite this, the share price in after-hours trading fell by up to 8 per cent. After the opening of trading on the German market, the decline narrowed to 3 per cent. It seems that the very high expectations of investors confirmed the stock market saying: ‘buy the rumours, sell the facts’. No matter how good the company's results and forecasts would have been, the market could have reacted with a discount. Therefore, let's take a look at what is behind the decline in Nvidia shares?
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What has happened on the markets?
The fall in the shares of a key AI technology player caused Nasdaq 100 index contracts to fall by more than 1 per cent and most large technology companies to be discounted.
Source: Conotoxia MT5, NVIDIA, Daily
In Q2 2024, the company reported record revenues of $30 billion, up 122 per cent year-on-year. Net profit grew 168 per cent year-on-year, which translated into a net profit margin of as much as 55 per cent. The biggest sales growth came from the data centre segment, driven by demand for the Hopper GPU platform used in AI applications. The company plans to introduce the new Blackwell architecture in Q4 this year, which may have worried markets hoping for an earlier deployment.
Is Nvidia overvalued?
From a fundamentals perspective, the current share price assumes an average annual improvement in financial performance of around 40 per cent over the next 10 years. The company is growing in line with these assumptions, although it may experience a slowdown in earnings growth in the future. Based on these assumptions, the company's current valuation appears neither overvalued nor undervalued. Noteworthy is the significant increase in the distribution of earnings to shareholders, particularly through the share buyback programme, which has been extended by an additional $50bn, up from the previous $7.4bn. Conotoxia Ltd. believes that the current market discount can only be a correction of earlier expectations, as Nvidia fundamentally still looks solid.
Source: Conotoxia's own analysis
Grzegorz Dróżdż, CIIA, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the publication nor Conotoxia Ltd. shall be liable for investment decisions made on the basis of the information contained herein. Copying or reproducing this publication without written permission from Conotoxia Ltd. is prohibited. Past performance is not a reliable indicator of future results.
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