Nvidia recently released its third-quarter earnings report, which exceeded analyst expectations with impressive growth figures. The company achieved a 94% year-on-year revenue increase, reaching $35.08 billion for the quarter ending October 27. Net income also saw a remarkable rise, climbing 109% to $19.3 billion.
Despite these strong results, Nvidia's shares experienced a 2.5% decline in extended trading, indicating a shift in investor sentiment and expectations.
The demand for Nvidia's next-generation chip, Blackwell, is expected to outstrip supply for several quarters in fiscal 2026, highlighting the company's significant role in the AI and data center markets. However, the market's reaction to Nvidia's earnings report suggests that investors are now more focused on the rate of growth rather than just the absolute figures. While Nvidia's growth trajectory is still impressive, it has slowed compared to previous quarters, leading to a more cautious outlook from investors.
On the day of Nvidia's earnings announcement, U.S. markets displayed mixed performance. The Dow Jones Industrial Average rose 0.32%, breaking a four-day losing streak, while the S&P 500 remained flat and the Nasdaq Composite dipped by 0.11%. This mixed trading environment reflects broader economic concerns, particularly weak growth in the eurozone highlighted by the European Central Bank. In the U.K., inflation data for October showed a sharp increase, which diminishes the likelihood of the Bank of England lowering interest rates in December. These economic indicators contribute to a complex backdrop for investors.
The concept of the "hedonic treadmill" provides insight into Nvidia's current situation. As the company consistently delivers outstanding performance, investor expectations have risen accordingly. While Nvidia's revenue growth is still robust at 94%, it is slower compared to the extraordinary rates seen in the preceding three quarters. This deceleration in growth has led to a more tempered response from the market, as investors recalibrate their expectations. The forward guidance of around 70% growth for the current quarter, although impressive, is viewed as insufficient given the company's historical performance.
The decline in Nvidia's stock price following a strong earnings report highlights the heightened expectations surrounding the company. Investors now expect Nvidia not only to meet analyst estimates but to exceed them significantly. This shift in sentiment reflects a broader trend in the tech sector, where companies are increasingly held to elevated standards. Nvidia's experience serves as a cautionary tale for other firms in the industry, as they navigate the balance between growth and valuation in the rapidly evolving tech landscape.