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Nvidia (NVDA), the leader in AI chips, reported stronger-than-expected third-quarter earnings, but concerns about an AI bubble have overshadowed its growth. Despite the company’s positive results and a bright outlook for the future, its stock declined, echoing broader market trends. Wall Street’s mixed reaction underscores the tensions between Nvidia’s remarkable growth and mounting fears of a potential overvaluation in the AI sector.

Strong Earnings But Market Skepticism Persists

For the third quarter, Nvidia posted earnings of $1.30 per share on revenue of $57.01 billion, beating analyst expectations. Wall Street had anticipated $1.26 per share and $55.2 billion in revenue.

This growth marks a significant improvement from the same period last year, when Nvidia’s earnings and revenue were much lower, at $0.81 per share and $35.1 billion, respectively. The data center segment, which focuses on AI-driven chips, contributed significantly to this increase, bringing in $51.2 billion versus the expected $49.3 billion.

Despite this solid financial performance, Nvidia’s stock fell by 3.15% after the earnings report. This decline occurred despite an initial spike in the stock price earlier in the day. The company’s decline mirrors a broader trend where AI-focused stocks, including competitors like AMD, also posted losses. This shift raises questions about the sustainability of Nvidia’s market value, given the rapid rise of AI-related stocks in recent years.

Nvidia’s Robust AI Outlook Amid Growing Concerns

Nvidia’s CEO, Jensen Huang, dismissed the idea that the surge in AI demand signals a bubble. On the earnings call, Huang said, “We’ve entered the virtuous cycle of AI,” emphasizing the rapid scaling of AI across industries and regions. He also pointed out that demand for Nvidia’s AI chips, such as its Blackwell architecture, has been “off the charts,” with cloud GPUs selling out.

The company is projecting even stronger growth in the next quarter, with estimated revenues of $65 billion, surpassing the $62 billion forecasted by analysts. This optimistic outlook is fueled by Nvidia’s continued leadership in AI chip development and expanding use cases in sectors ranging from cloud computing to autonomous vehicles.

However, while the forecast is encouraging, Wall Street remains wary, with some investors questioning whether Nvidia’s stock price fully reflects its underlying growth potential.

The Role of Nvidia’s Data Center Business

A major driver of Nvidia’s performance is its data center business, which has grown substantially due to the increasing demand for AI processing power. The company’s accelerators, particularly the Blackwell Ultra chips, are central to its success. CFO Colette Kress highlighted the continued strong demand for these chips, noting that Nvidia’s AI-focused hardware has a long lifespan due to consistent software updates.

However, Nvidia’s gaming segment, which has traditionally been a significant revenue source, underperformed. With $4.3 billion in gaming revenue, the company fell short of the $4.4 billion estimate. This miss in the gaming division is a reminder of the volatility within Nvidia’s diversified business model and raises questions about its ability to maintain growth across all areas.

Investor Sentiment and AI Market Dynamics

The AI boom has attracted attention from major investors, including the sale of Nvidia stakes by hedge funds like those backed by Peter Thiel and SoftBank Group. Despite the company’s positive earnings, investor sentiment is mixed, with some market participants fearing that Nvidia’s stock could be overvalued amid the broader excitement over AI technologies. Analyst and investor Michael Burry has also voiced concerns, arguing that companies may be inflating their earnings by underreporting depreciation on data center assets.

In response to these concerns, Nvidia’s leadership stressed the long-term value of its AI chips, pointing out that its products have a prolonged useful life due to ongoing software support. Despite the growth in AI investments, Nvidia’s management continues to project a strong future for the company, underscoring the increasing importance of AI across various industries.

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