Is Nvidia's slowing sales growth a warning for the AI trade?

Yahoo

3 days ago

Nvidia's (NVDA) sales growth has slowed, down sharply from over 250% a year ago.
Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance's Stocks In Translation podcast, breaks down what Nvidia's cooling momentum could mean for the broader artificial intelligence (AI) trade ahead of the company's earnings.
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Nvidia sales growth, it is cooling fast down from, uh, down to 80% from over 250% just a year ago. Now, Nvidia is a poster child for the AI fueled bull market. So ahead of Wednesday's big earnings announcement, investors are asking, is this slowdown? Is it a warning sign for the entire AI trade? Let's take a look now at how Nvidia got to this point. I'm Jared Blikre, host of Stocks and Translation. So, in green bars behind me, you're going to see Nvidia's quarterly revenue in billions of dollars scaled on the right access. The white line is year-over-year sales growth as a percentage scaled on the left. And this chart goes all the way back to 1999, that's when they IPOed. Now, early on, Nvidia benefited from the first ever graphics chips, but growth cratered during the dotcom bust going negative by 2002. In 2006, Nvidia found new life with its parallel computing platform, CUDA, boosting sales growth back into positive territory until the global financial crisis hit, dragging sales deeply negative, negative again by 2009. But another growth spike came in 2016 to 18 with the Pascal chip launch and crypto mining boom. This pushed growth over 50%, but by early 2019, the crypto hangover hit hard with sales falling by as much as 31% year over year. Then came the pandemic, boosting sales growth back into double-digit territory once again by 2020 as gaming and data centers surge. But nothing compares to Nvidia's AI supercycle in 23 and 24. Early growth, or yearly growth spiked to record levels, peaking at an incredible 265% in April of last year, and this is as quarterly revenue hit $26 billion. So now the question is whether the recent drop to only 80% growth, does that signal the beginning of the end for this AI fueled run or does it accelerate once again? So, let's take a different look now at how Nvidia's market cap has grown since the end of the last century. Now market cap is simply the current stock price multiplied by all the shares outstanding. And another note, the chart is in log scale, meaning that the numbers increase quickly as you go up. Each identified level to the left is 10 times more than the prior number, so from $1 billion to $10 billion to $100 billion, then finally $1 trillion on the left. Now, starting after an initial, excuse me, after an initial surge during the dotcom boom, Nvidia hit $10 billion in market cap in December of 2001. And this is a level that acted like a magnet kind of, uh, holding the stock roughly in place for over a decade. But it wasn't until 2016, the launch of Pascal and that first big AI bet that the stock finally broke out, becoming a 10 bagger, multiplying in value 10 times in less than three years. But big drops hit again, getting cut in half in the 2018 crypto crash and 65% from 2022 from AI export controls and slowing demand. Then, finally, in May 23, one massive AI driven earnings beat added nearly a quarter trillion dollars in a single day, making Nvidia the first chip maker to join the trillion dollar club. By early 24, the company had hit $2 trillion again on another blowout earnings report. And in June 24, it peaked at $3 trillion, finally topping King Apple as the most valuable company in the world. And currently, that title is held by Microsoft. So, with Nvidia earnings right on investors' doorstep, Wall Street will see if the chipmaker's growth is simply cooling and set to accelerate again or if the AI boom is beginning to fade. Either way, it's not just Nvidia on the line. It might be the entire AI trade. Tune into Stocks and Translation for more jargon busting deep dives, new episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.