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More than 30 years ago, the advent and proliferation of the internet changed the world forever. It provided businesses with new pathways to market and sell to customers, and paved the way for the retail investor revolution by breaking down information barriers that had existed between Wall Street and Main Street for over a century.
Investors have been waiting a long time for the next breakthrough technology, and AI has answered the call. Empowering software and systems with the tools to make autonomous, split-second decisions is a multitrillion-dollar addressable opportunity, and that opportunity is closely tied to Nvidia's hardware.
But while Nvidia's graphics processing units (GPUs) are dominating in AI-accelerated data centers, history suggests a day of reckoning is approaching for its stock.
Nvidia’s fiscal first-quarter operating results are due one month from the article’s publication. The company is scheduled to unveil its 2027 fiscal first-quarter operating results after the closing bell on May 20.
Based on the outlook provided by Nvidia and CEO Jensen Huang, the quarter is expected to be strong.
When Nvidia reported its fiscal fourth-quarter results in late February, it guided for $78 billion in first-quarter sales (plus or minus 2%) and a GAAP gross margin of 74.9%.
The guidance implies 77% sales growth from the comparable quarter last year and a significant improvement in GAAP gross margin.
Although Nvidia has a track record of exceeding Wall Street analysts’ consensus quarterly revenue and profit forecasts, the stock’s reaction after earnings suggests investors’ expectations for Nvidia—and potentially AI more broadly—may be too lofty.
The article lists how Nvidia shares performed the day after each quarterly operating results release:
While it is not uncommon for Nvidia shares to rise in after-hours on the day of release, the article notes that shares have fallen from the prior-day close following five of the last seven quarterly earnings releases. On average, Nvidia loses 3% of its value after unveiling its operating results.
The article argues that, since the internet’s rise, every game-changing technology over the past 30 years has experienced an early “bubble-bursting” event. It attributes these bubbles to investors overestimating the adoption and/or optimization of innovations.
It also states that Nvidia’s operating results indicate there is not an AI infrastructure adoption issue. However, businesses may not be close to optimizing their AI solutions or generating positive returns on their AI investments.
Based solely on the historical pattern described in the article, May 21 could be a difficult day for Nvidia and its shareholders.
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