Nvidia recently reported its revenue and earnings for the second quarter of its fiscal year, while also providing guidance for Q3 that slightly exceeded the median consensus estimate. Despite these positive results, the initial reaction in the market during extended trading hours indicates that the most optimistic expectations were not entirely met. The stock price movement following the earnings announcement was notably subdued, especially compared to the historical average of a 7-8% absolute 1-day move after earnings, and the 10% volatility anticipated by the options market this time around. Going forward, investor sentiment toward Nvidia will largely depend on the tone and details provided by management during the conference call, particularly regarding future outlooks.
Ahead of the earnings release, there was some apprehension surrounding Nvidia's new Blackwell chip, primarily due to previously acknowledged design flaws that had delayed its production timeline. The concern was whether these issues were more severe than initially reported. However, Nvidia's guidance on the production ramp-up and expected revenue from the Blackwell chips suggests that, while there were indeed challenges, they do not appear to have significantly derailed the chip’s overall production.
Investors should find Nvidia’s Q2 performance and future outlook reassuring. The results suggest a potential for another wave of AI investment, with major technology companies likely to invest heavily in the new Blackwell chips, which boast greater energy efficiency and significantly enhanced compute power for both training and inference tasks. Additionally, the competitive landscape seems to remain in Nvidia's favour, as no other player appears close to challenging its market dominance, reinforcing the strength of Nvidia’s investment case.
Currently, Nvidia is valued at approximately a 3% 12-month free cash flow yield, based on an expected free cash flow of $85 billion for FY26 (ending in January 2026), which is relatively lower compared to the 4.5% yield for the MSCI World Index.
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