It’s no secret that Nvidia(NASDAQ: NVDA) is one of the hottest artificial intelligence (AI) shares on the market. The chipmaker just reported an incredible third quarter and exceeded Wall Street’s sky-high expectations. So why were stocks trading lower on Thursday when the market opened?
Although it may seem to defy logic, it is not an uncommon phenomenon. Let’s take a look at why it happens and see if the past can shed any light on what happens next. First, let’s look at Nvidia’s quarter.
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Few companies have as much on their shoulders as Nvidia in today’s market. The company’s performance is seen as an indicator of the market as a whole. So it’s a good thing Nvidia delivered this quarter.
Nvidia’s data center segment remains the driving force behind its success, although its gaming business is still showing solid growth. Demand for its Superchips and related hardware is at a fever pitch. As CEO Jensen Huang puts it, “The age of AI is in full force, driving a global shift to Nvidia computing.”
The big news is confirmation that Blackwell, the latest version of its Superchips, is on schedule and will be rolled out without any problems. During the earnings call, Huang made it clear that the first chips are already “in everyone’s hands.” [Nvidia’s] major partners” and will soon be shipped to end users – companies such as Meta And Microsoft operate massive AI data centers.
According to Huang, demand for Blackwell is “mind-boggling”; Nvidia has so many orders it’s struggling to keep pace. Despite this, demand for current Hopper chips remains strong, and Huang indicated he believed orders would continue well into next year.
In addition to the numbers, Nvidia highlighted some key developments that show growing demand among U.S. commercial customers. Denmark has just launched its first AI supercomputer, powered by Nvidia’s Hopper chips. This is an important customer base for Nvidia that is often overshadowed by its success with major tech cloud operators. “Sovereign AI” – world governments that run their own computers – could become a huge industry as countries around the world enter an information arms race.
Nvidia is also seeing commercial success globally, with new private companies in India, Japan and Indonesia building Nvidia-powered AI data centers.
In the first hours after the market opened on Thursday, Nvidia shares fell, briefly reaching $141 after closing at nearly $146 the day before. Why would this happen after such a strong quarter? This is quite common when Wall Street expectations exceed the company’s performance, even if that performance is solid. That’s not what happened here. Nvidia easily exceeded expectations with revenue of $35.1 billion and earnings per share (EPS) of $0.81. The consensus targets were $33.2 billion and $0.75, respectively.
The point is, market sentiment can even beat Wall Street estimates. With all the hype surrounding Nvidia and talk of “insane” demand for its new chips, it’s becoming increasingly difficult for the company to meet investor expectations regardless of the numbers it delivers. It’s the curse of success. Nvidia has consistently exceeded expectations, so even if it does, it might not be enough.
Some research has shown that investors tend to put too much faith in past profits. Over time, this leads to a stock becoming overbought in the run-up to the earnings release, followed by a short-term dip. What Nvidia is experiencing is very normal.
Don’t panic. The long-term potential is what we want to focus on most here and this report shows that this is still firing on all cylinders. Given other stocks that followed Nvidia’s shoes and Nvidia itself last quarter (shares fell 18% in the days following earnings reports), history tells us the stock will do well.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Nvidia shares fell despite stellar profits. Here’s what history says comes next, originally published by The Motley Fool
