Nvidia earnings beat estimates—so why is Wall Street hesitant

Nvidia earnings beat estimates—so why is Wall Street hesitant

Jacob Falkencrone

Global Head of Investment Strategy

Key points:

  • Nvidia exceeded expectations with record-breaking revenue and strong guidance, but the stock reaction was muted as Wall Street had hoped for an even bigger beat.
  • Gross margin fell to 71%, below estimates, as Nvidia ramps up production of its next-gen AI chips—raising concerns about profitability despite booming sales.
  • Nvidia remains the AI market leader, but rising competition (DeepSeek), potential cloud spending slowdowns, and sky-high expectations mean investors should brace for volatility.

Nvidia just dropped its latest earnings, and the numbers are nothing short of massive. In the fourth quarter, the AI chip giant posted:

  • Revenue of USD 39.3 billion, up 78% from a year ago, and well above the USD 38.1 billion expected by analysts.
  • Net income of a staggering USD 22.1 billion, beating expectations of USD 19.8 billion.
  • Guidance for the next quarter was also strong, with Nvidia forecasting USD 43 billion in revenue, slightly ahead of the USD 42.1 billion Wall Street expected.

But despite these stellar results, the stock traded in a narrow range of -2% to +2% in after-hours trading, as investors wrestled with whether the numbers were impressive enough to justify Nvidia’s already sky-high valuation. So, why isn’t Wall Street celebrating with another AI-fueled rally?

AI gold rush: Nvidia still leads, but competition is rising

Nvidia remains the undisputed leader in AI chips. Its Blackwell AI architecture is seeing “the fastest ramp in our company’s history,” with USD 11 billion in sales in its first quarter alone. Tech giants like Microsoft, Amazon, and Meta are continuing their AI arms race, snapping up Nvidia’s chips to power the next generation of artificial intelligence.

But there are signs that competition is creeping in. The emergence of DeepSeek raised concerns about efficiency improvements in AI model training. If powerful AI models can be built with fewer high-performance GPUs, demand for Nvidia’s chips could cool off faster than expected. When DeepSeek made its announcement in January, Nvidia’s stock plunged nearly 17% in one day, wiping out USD 589 billion in market cap.

That said, Nvidia’s CEO Jensen Huang remains extremely bullish, stating: "Demand for Blackwell is amazing as reasoning AI adds another scaling law – increasing compute for training makes models smarter, and increasing compute for long thinking makes the answer smarter”.

Margins under pressure

One key reason for the market’s lukewarm reaction? Shrinking profit margins. Nvidia’s gross margin fell to 71%, below estimates, and down from 73.5% last quarter.

The culprit? The transition to more complex and costly-to-produce AI chips. Nvidia is spending heavily to ramp up production of its next-gen Blackwell chips, and while revenue is soaring, the higher costs are cutting into profitability. For investors, this raises a critical question: Is Nvidia’s explosive growth sustainable, or are profit margins peaking?

Market reaction: high expectations, higher risks

Nvidia’s stock has been on an unstoppable tear the last years. In fact, its latest quarterly sales are bigger than its entire annual revenue from just two years ago. But with the stock already reflecting sky-high growth expectations, investors were hoping for an even bigger beat. Some analysts had anticipated a guidance figure north of USD 45 billion, and while Nvidia delivered strong numbers, it wasn’t the "blowout" some were hoping for.

As a result, the reaction in the stock has been minimal despite record-breaking revenue. This reflects a classic “priced-for-perfection” scenario – when expectations are this high, even strong earnings may not be enough to push shares higher.

The AI trade: what’s next for Nvidia and the market?

Nvidia isn’t just any stock – it’s the bellwether for the entire AI sector. Its results influence investor sentiment around AI stocks like AMD, Broadcom, and Super Micro, as well as the rest of the Magnificent Seven.

One major takeaway from this report? AI demand remains red-hot, but cloud computing giants may be nearing a spending plateau. Some analysts have flagged the risk that Microsoft, Amazon, and Google could scale back AI hardware spending after an initial surge. That said, Nvidia still has huge opportunities ahead:

  • AI is still in its infancy: Industries like healthcare, finance, and autonomous driving are just beginning to tap into AI’s full potential, which could sustain demand for Nvidia’s chips well into the future.
  • New product cycles drive fresh demand: The next generation of Rubin AI chips, expected in 2026, could unlock another wave of revenue growth.

Key takeaways for investors

  1. AI demand remains incredibly strong, but concerns about efficiency improvements (DeepSeek) and slowing cloud spending could weigh on Nvidia’s long-term growth.
  2. Margins are under pressure, with gross margin falling to 71%, as Nvidia spends more to push cutting-edge AI chips to market.
  3. The stock is priced for perfection – while growth is massive, any sign of slowing demand or weaker-than-expected guidance can send shares lower.
  4. Nvidia remains the AI market leader, and for long-term investors who believe in AI’s future, any dip could be an opportunity.

For those with a long-term view, Nvidia’s dominance in AI is undeniable. But with the stock already reflecting massive growth expectations, new investors might want to be cautious about chasing the AI rally at these levels. As always, the best investment strategy is most often to stay diversified, think long-term, and remember that no stock – even Nvidia – goes up in a straight line.

Quarterly Outlook

01 /

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992