Why Nvidia Stock Dropped on Earnings Day – Motley Fool

What happened

It’s earnings day for Nvidia (NASDAQ:NVDA) stock — but the earnings aren’t here just yet.

This afternoon, at 4 p.m. ET, the biggest name in graphics semiconductor chips will report its sales and profits for fiscal Q4 2021, and for the whole year as well. But before the earnings news has even arrived, investors have started selling off Nvidia stock, which is down 2.3% at 10 a.m. ET.


Blackboard drawing of arrow going down labeled down.

Image source: Getty Images.

So what

“Nerves” is probably the answer. Wall Street has told investors that Nvidia grew its sales 48% in Q4, and grew its earnings 58%. If true, that would be pretty incredible growth, and some analysts think Nvidia may have done even better than this, with investment bank Piper Sandler, for example, saying yesterday that the company will probably beat expectations — and raise guidance as well.

And here’s the perverse truth: If most investors agree with Piper Sandler, then even meeting consensus earnings targets tonight might not be enough to prevent Nvidia stock from falling. If too many investors are assuming a beat, then the stock could fall no matter what Nvidia reports.

To be clear: I’m not saying that will happen. (In fact, I kind of suspect Nvidia will beat earnings tonight.) I’m just saying: If Nvidia stock falls despite reporting terrific earnings, don’t be too surprised.

Now what

Whichever direction Nvidia stock heads in the short term, the long-term news for the stock continues to be good. This morning, for example, car company Jaguar Land Rover (JLR) announced that it is partnering with Nvidia to “jointly develop AI-powered autonomous driving and connected services.”  

Calling Nvidia “the leader in artificial intelligence (AI) and computing,” JLR plans to start building vehicles based on Nvidia’s “Nvidia Drive” software platform in 2025. “All future vehicles” will be built on this platform, said JLR. Additionally, JLR will use Nvidia chips to build an “in-house developed data centre … for training AI models.”

Whatever happens tonight, Nvidia’s growth story looks intact.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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