(Reuters) -Nvidia shares were choppy on Thursday after the artificial intelligence chip giant’s upbeat quarterly forecasts pointed to booming demand but also signaled a hit from a complex rollout of its latest processor.
The stock edged up 0.9% to $132.50 in premarket trading, reversing from marginal losses earlier. It had closed nearly 4% higher in regular trading on Wednesday ahead of the results.
“The muted response is a balance of strong revenue and lower gross margins,” said Gil Luria, analyst at D.A. Davidson.
“Gross margins are under pressure because of the transition to the new Blackwell products set. New semiconductor products tend to start off at lower margins and ramp over time.”
The world’s second-most valuable company has been the top beneficiary of an AI-driven spending spree by big technology companies over the past two years, with its shares gaining more than 400% in that period.
The magnitude of its revenue beats, however, has been narrowing as the company faces tough comparisons from robust year-ago growth rates. That has weighed on the market reaction after its results over the past two quarters.
“It’s yet another typical Nvidia report where they beat and raise expectations,” said Ken Mahoney, CEO of Mahoney Asset Management. “For them to have this track record of doing that every time, in some way almost works against them as the market is not impressed unless it is a blow-out beat and raise.”
Investor worries over the need for heavy investments in AI infrastructure, including chips, had been fanned by the launch of low-cost AI models from Chinese startup DeepSeek and, more recently, by an analyst report that Microsoft had cut back on data-center leases.
Nvidia CEO Jensen Huang allayed some of those fears on Wednesday, saying demand for the company’s latest Blackwell chip was “amazing” and that it had already pulled in around $11 billion in revenue related to the processor in the fourth quarter.
Its customers have in recent weeks promised to plow ahead with massive capital spending on AI, with Microsoft earmarking $80 billion in its current fiscal year, while Meta Platforms has pledged as much as $65 billion.
Some analysts said the volatile share reaction highlighted that some investors were taking profits from a stock that has been on a tear.
“The bull case for AI is well understood, yet as with all ‘next big thing’ situations, expectations often get ahead of themselves and there is a pullback or pause along the way,” said Dan Coatsworth, investment analyst at AJ Bell.
Nvidia also expects its margin to dip in the current quarter to 71% from 73.5% as it ramps up Blackwell, though finance chief Colette Kress said the company would return to the mid-70% gross margin range later in the fiscal year.
Of the 63 analysts covering the stock, 33 have a “strong buy” rating, as per LSEG data. The median price target stood at $175, implying that analysts expect a 33% increase from the stock’s Wednesday close.
Shares recently traded at about 29 times their forward earnings, down from more than 80 two years ago, as rising earnings pull down the premium at which the stock trades. Rival Advanced Micro Devices trades at about 22 times its forward earnings.
“By virtue of scale, growth may be slowing a little but upgrades to analysts’ full-year numbers can be expected off the back of results,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
“At around 30x forward earnings the valuation still doesn’t look overcooked.”
(Reporting by Alun John in London, Joel Jose and Sruthi Shankar in Bengaluru; Editing by Amanda Cooper and Saumyadeb Chakrabarty)
