Nvidia Corp. (NASDAQ: NVDA), despite beating Wall Street expectations for its third quarter and releasing strong guidance that exceeded expectations, saw its pre-market trading plummet.
This raises the question, why isn’t the positive performance of the company reflected in its share price?
The answer could be found in the psychological concept known as the “hedonic-treadmill.”
The hedonic cycle suggests that expectations increase with each success, and it takes more significant wins to maintain a similar level of satisfaction, or, in Nvidia’s case, an increase in stock price.
Nvidia’s revenue has been declining
Nvidia’s revenue nearly doubled to $35.1 billion during Q3, a 94% increase year-over-year. However, this impressive growth does not seem to be enough to impress investors used to even more spectacular results.
The AI chip specialist reported an increase of 122% in revenue in Q2 compared to the previous two quarters.
Investors in NVDA aren’t focusing solely on the 94% growth rate of the most recent quarter.
The stock price is now being affected by the slowing revenue growth in the last four quarters.
Investors are less impressed with current performance, and more concerned about the trajectory of growth in the future.
Nvidia predicts a further slowdown of revenue growth
Investors are also upset this morning because the company’s guidance for the future does not indicate a reacceleration of revenue growth.
Nvidia now expects to generate $37.5 billion in revenue for its fourth fiscal quarter.
Although this is better than the $37.08 billion forecast by experts, it still represents a rather dull 70% growth year-on-year (by Nvidia standards).
NVDA’s shareholders are likely to be disappointed by the fact that this quarter will be the fifth consecutive quarter in which revenue growth has slowed.
The pressure on Nvidia’s stock in the premarket “tells how much expectations have been ramped up on Nvidia.
In a CNBC interview, Aswath Damiodaran, finance professsor at the Stern School of Business said that they had to beat analyst expectations by 10%.
Should you buy Nvidia stock at the current low price?
Investors should be aware that Nvidia has a history of crashing after releasing stellar earnings.
The share price of the company fell in the near term after the market was blown away by its results for the second quarter.
The NVDA stock has risen 200% in the past year, proving that weakness is usually short-lived.
Nvidia has recently been reported to be experiencing overheating problems with Blackwell.
The company confirmed last evening that it would “deliver more Blackwells in this quarter than what we had estimated,” putting to rest any concerns about a possible slowdown.
There’s reason to think that Nvidia’s stock could resume its upward trajectory after a temporary weakness on Thursday.
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