Feb 26 - Nvidia's stock declined on Thursday after the company's optimistic forecast did not translate into positive investor sentiment. Shares fell 4.8% to $186.28 in morning trading, a move that weighed on the main U.S. indexes after the stock had closed at a three-month high on Wednesday.
The company told investors it expects fiscal first-quarter sales of $78 billion, plus or minus 2%, versus analysts' average estimate of $72.60 billion, according to data compiled by LSEG. Despite that guidance, traders reacted negatively, reflecting heightened scrutiny of whether the company's rapid momentum can be sustained.
Market participants are increasingly focused on the returns being generated from substantial corporate spending on artificial intelligence. Questions about the long-term path for demand resurfaced as rivals introduced new AI accelerators, major cloud customers invested in custom silicon, and the broader AI spending cycle showed signs of becoming more uneven.
Analysts at J.P. Morgan highlighted the stock reaction as a signal that some investors expected more from the results. "The stock response suggests investors were left wanting more, which we think is tied to continued uncertainty around the growth trajectory for NVDA's data Center business in CY27, given massively expanded capex budgets for key customers," the J.P. Morgan team said in a note.
The market's tempered response illustrates the tension between record-setting sales momentum and mounting questions about how capital expenditure plans among hyperscalers and other large customers will translate into sustained revenue growth for Nvidia's data center business.
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Summary
Nvidia reported a fiscal first-quarter sales outlook that topped Street estimates, yet the company's shares fell sharply as investors signaled concerns about whether the surge in AI-related spending will deliver sustained returns. Competitive developments and shifts in customer capital spending are contributing to uncertainty around future growth for Nvidia's data center segment.
Key points
- Nvidia's shares dropped 4.8% to $186.28 in morning trading after closing at a three-month high the previous session.
- The company forecast fiscal Q1 sales of $78 billion, plus or minus 2%, versus analysts' average estimate of $72.60 billion, per LSEG data.
- Investor concern centers on the sustainability of Nvidia's momentum as rivals release new AI accelerators and hyperscalers build custom chips, contributing to unevenness in the broader AI spending cycle.
Risks and uncertainties
- Uncertainty over the growth trajectory for Nvidia's data center business in calendar year 2027 given expanded capex budgets among key customers - a factor that could affect semiconductor and data center sectors.
- Increased competition from rivals rolling out AI accelerators, which could pressure Nvidia's market share in the AI hardware space.
- Potential unevenness in the AI spending cycle as hyperscalers and other large buyers adjust their capital expenditures, impacting demand visibility across the cloud and data center markets.