The Nvidia logo at Computex in Taipei, Taiwan on June 5, 2024.
Ann Wang | Reuters
This report comes from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open tells investors everything they need to know, no matter where they are. Do you like what you see? You can register here.
What you need to know today
Irregular shares
Major U.S. indexes fell on Wednesday, dragged down by Nvidia as investors rallied ahead of its earnings. Super Micro Computer was also a big problem, with its shares falling 19% after the company said it would not file its annual report on time, and Hindenburg Research revealed a short position on it.
Asia’s chip stocks sink
Asia-Pacific markets fell on Thursday amid broad declines in Asia-related technology and chip stocks. The decline was accelerated by investor disappointment with Nvidia’s earnings, which dragged out companies involved in Nvidia’s supply chain. SK Hynix sank about 5.3 percent, while Samsung Electronics fell 3.1 percent.
The new chip war
Chinese electric vehicles dominate, accounting for up to 60% of the global market, according to the International Energy Agency. Now, Chinese electric car companies are turning to in-house designed auto chips that will power features like driver assistance and infotainment to stand out more and consolidate market share.
[PRO] Giant discount, discount stocks
Shares of PDD, the Chinese e-commerce giant, plunged nearly 29% on Monday and continued their decline in subsequent sessions. Analysts look at the reasons behind PDD’s fall – and whether the lower price right now might be a good opportunity for investors to get in.
The essence
Is it fair to say Nvidia beat expectations if the chipmaker’s performance over the past year has led private investors to always expect the company to beat expectations?
For the recently ended quarter, Nvidia earned $30.04 billion in revenue, higher than the $28.7 billion expected. Even better, it said it expects about $32.5 billion in revenue for the current quarter, beating the $31.7 billion analysts had estimated.
That boost comes as the company expects to “ship several billion dollars in revenue to Blackwell,” Nvidia Chief Financial Officer Colette Kress said. Blackwell is Nvidia’s next-generation AI chip.
It’s all good news, right? So why was Nvidia stock down more than 7% in extended trading?
There was a dark cloud: Nvidia’s gross profit margin in the current quarter fell to 75.1% from 78.4% compared to the previous period. The company also said it expects full-year gross margins to be in the “mid 70% range.”
This is perhaps the only number that was below consensus expectations. Analysts were looking at 76.4% for the full-year margin.
Shrinking margins mean that income won’t grow as quickly even if revenue soars. So this is reasonable cause for concern.
Nvidia’s earnings came out after the bell, but had investors on the sidelines and dragged broader U.S. indexes lower on Wednesday.
Investors are generally concerned about the sustainability of the Big Tech boom. Technology-heavy Nasdaq Composite fell 1.12%, h S&P 500 slipped 0.6% and the Dow Jones Industrial Average fell 0.39%.
When U.S. trading reopens on Thursday, Nvidia’s impact on the broader market will likely be more pronounced. The options market “suggests a +/- 10% move after earnings, higher than the four-quarter average of 7%,” John Marshall, who is with Goldman Sachs’ derivatives research group, said in a note to the customers.
When you’re expected to exceed expectations, you essentially have two bars to clear. This, perhaps, puts unfair pressure on a company and its stock.
— CNBC’s Kif Leswing and Jesse Pound contributed to this report.
