Nvidia's stock can't keep up with otherworldly expectations

• Nvidia stock slid on Thursday, even after the AI titan's earnings beat across the board.
• While investors are used to it blowing the doors off, it reported its smallest beat in several quarters.
• The share reaction reflects the insatiable, sky-high expectations investors have for the company.

Nvidia investors are starting to look a little spoiled.

The AI-chip maker posted another stellar period of earnings after the market close on Wednesday, beating second-quarter forecasts for sales and earnings per share, while outpacing consensus expectations for third-quarter revenue.

But the strong report was met with a collective shrug from Nvidia shareholders, who pushed the stock down as much as 7% in post-market trading. Shares were roughly 4% lower as of 10:25 a.m. ET, putting a slight dent into the company's more than 700% rally since the start of 2023.

The reaction reflects the lofty expectations investors have for Nvidia. It's not enough for the company to beat forecasts — it has to blow the doors off. It's a precedent it has set over the past two years.

That bullishness now appears to be working against the stock. If there was any knock on Wednesday's report, it was that it marked the smallest beat in the past six quarters. Despite being a convincing beat, it wasn't enough to wow shareholders.

"I think the modestly negative reaction after-hours reflects some degree of disappointment in the magnitude of the beat relative to buy-side expectations, which are higher than the sell-side," Chandler Willison, a research analyst at M Science, said in a note Wednesday evening. "Additionally, I think some investors were hoping for higher out-quarter guidance."

Ryan Detrick, the chief market strategist at Carson Group, said that "it appears the bar was just set a tad too high this earnings season," while acknowledging Nvidia's immense revenue growth.

Despite tracking Nvidia's move lower immediately after the earnings report, its fellow chipmakers Advanced Micro Devices and Micron saw shares climb more than 1% on Thursday.

On a longer-term basis, Wall Street remains bullish on Nvidia. The average forward 12-month price target, as compiled by Bloomberg, is $147.55, roughly 21% above current levels. The second-quarter report did nothing to dissuade the bullishness as the vast majority of analysts reiterated their forecasts and "buy" ratings.

Among the company's biggest bulls is Dan Ives of Wedbush Securities, who said the firm's valuation could hit $4 trillion. He called the latest results a "drop the mic" moment for the company, despite the initial investor disappointment.

Correction: August 29, 2024 — An earlier version of this story misspelled the first name of an M Science analyst. His name is Chandler, not Chandel.