NVDA Earnings Show AI Chip Demand Growth Levelling Off

The markets regained optimism in AI following Nvidia's earnings last week, but it wasn't enough to lift equities as analysts worry about a narrowing market and short-term growth prospects.

Blowing It Out of the Water

Nvidia's earnings came in well above analyst estimates, leading to a 7% stock surge during extended trading and above the $1,000 mark for the first time in record. The company also announced a 10-for-1 stock split, with a lower price attracting more buyers. Other positive news in the report included the CEO's update on the anticipated Blackwell chip launching later this year.

The market viewed Nvidia's earnings as a sign that demand for AI remains strong. The company's own forecasts were above expectations, and further growth in sales was expected in the next quarter. However, the rate of growth is starting to level off, with projections showing an under 10% quarterly rise compared to the 262% annual increase reported in Q1. Still, Nvidia controls over 80% of the market share as competitors struggle to supply alternatives.

How Far Can It Go?

The positive earnings report helped pull other AI-focused stocks higher in an otherwise declining market. However, there were some concerning signs of suffering from success. Specifically, Amazon announced it would pause buying Nvidia chips as it waits for the more advanced "superchip" to be released later this year. This has led to worries about a temporary decrease in demand for AI chips as the release of advances in the model might not line up with linear growth in demand.

Last year, major companies like Amazon faced lengthy wait times for Nvidia chips. But now, wait times have been eliminated as Nvidia's partners, such as TSMC, have ramped up production, making customers feel more comfortable waiting for better models. This could suggest that the graphics chip maker's tremendously high growth may start to level off due to resolving the imbalance between supply and demand.

Following Nvidia's earnings report, the overall stock market declined even as tech rose, as concerns over interest rates and global economic growth dominated investor sentiment. Still, AI remains an important investment sector, with companies committing millions and Nvidia continuing its ascend.

Nasdaq to 20K?

Nasdaq continued to consolidate after reaching new highs following Nvidia's earnings. However, prices above 18500 could allow for further gains while trading within an ascending channel. Moving past the 19000 and 19500 handles would put 20000 within reach. Nonetheless, a slide back toward major support at 18000 may see a bounce at the lower end of the channel or a deeper pullback toward 17000.

Source: SpreadEx US Tech 100

Key Takeaways

Nvidia's earnings beat analyst estimates last week, lifting its share price and boosting optimism in AI. However, projections showed quarterly growth levelling off to under 10% amid worries over a narrowing market. While overall positive, Amazon is pausing chip purchases until Nvidia's next release, and resolving supply constraints could suggest dwindling growth. The Nasdaq rose in the aftermath of the report but then declined as concerns over interest rates dominated, though AI remains an important investment sector.