NVIDIA plummeted, and the reason was found

Financial Associated Press After the market closed on Wednesday Eastern Time, Nvidia’s financial report showed that the company’s performance was a great success: its fourth-quarter profits almost doubled, and revenue hit a record high.

However, Nvidia’s stock price has shown a completely opposite pessimistic performance.

The stock price of this “AI darling”, which is at the center of global artificial intelligence trading, fell after the market closed on Wednesday and closed down 5.5% on Thursday. This was the largest single-day decline since April last year, with nearly US$260 billion (approximately 1.7 trillion yuan) in market value evaporating overnight.

Share prices of other major chip manufacturers also fell sharply, such as Broadcom’s stock price fell by more than 3%, AMD fell by 3.41%, and TSMC fell by 2.8%.

NVIDIA’s stock price has plummeted, partly due to NVIDIA’s “curse”:Since August 2024, regardless of good or bad financial reports, Nvidia has always opened lower the next day.

In fact, the underlying reason behind this “curse” may be that the market is no longer surprised by Nvidia’s excellent performance: in the past three years, the company has steadily exceeded earnings expectations every quarter, which has given investors high expectations for its performance.

This means that even if it delivers strong financial reports, it seems to be routine for the world’s most valuable listed company and is no longer amazing.

Source: Getty

On the other hand, sentiment on Wall Street has certainly shifted — particularly in the area of ​​artificial intelligence and the market’s focus on Nvidia.

“Investors know something is wrong in paradise,” Mike O’Rourke, chief market strategist at JonesTrading, wrote after Nvidia’s earnings call.

The investment value of any company goes far beyond its earnings numbers, and that’s what O’Rourke and other AI shorts are focused on.

Nvidia Chief Financial Officer Colette Kress admitted at the financial report that the world’s top five cloud computing service providers and ultra-large-scale cloud computing companies will contribute more than 50% of Nvidia’s data center business revenue in 2026. This has once again aggravated Wall Street’s concerns about Nvidia’s data center demand being too concentrated.

During the conference call, an analyst asked Nvidia CEO Jensen Huang,How confident is he in customers’ ability to continue pouring hundreds of billions of dollars into Nvidia chips?。

Huang responded by saying he was “confident” in client companies’ cash flow growth.

But O’Rourke pointed out,The problem is that Huang Renxun’s statement is not consistent with the reality. In fact, the financial reports released by Amazon, Meta, Microsoft and Google, the top “hyperscale data centers” a month ago, showed that their free cash flow has either fallen sharply or leveled off.

O’Rourke wrote: “If management is not forthcoming about what is known, investors will fear the unknown.”

Richard Clode, portfolio manager at Janus Henderson, bluntly said: “The focus of the debate has shifted from recent performance results to the sustainability of artificial intelligence capital expenditures, with concerns about Nvidia’s scale, monetization and potential cash flow deterioration.”

What further intensified the pressure on Nvidia was a blog post by the well-known “Big Short” Michael Burry. Burry, who was the basis for the movie “The Big Short,” has been an outspoken critic of the artificial intelligence boom.

In the blog post, Burry focused on a statistic from Nvidia’s financial report that he believed could have “catastrophic” consequences if people’s enthusiasm for artificial intelligence begins to wane.

This key data isNVIDIA’s “Purchase Obligations” (Contracts to Purchase Goods within a Specific Time Frame). In its latest earnings report, that number soared to $95 billion from $16 billion a year ago. He pointed out that the reason is that its main supplier TSMC requires Nvidia to pay more cash for the complex custom chips it produces for Nvidia.

Burry wrote that this meant Nvidia was “forced to place non-cancellable purchase orders before demand was clear,” and that the change appeared to be “structural” rather than temporary. Once downstream demand falters in the future, this number, which is bound to expand further, may pose a huge risk to the health of Nvidia’s performance.

Investors pointed to the deadlock in Nvidia’s $100 billion deal with OpenAI as another sore point in the stock’s decline.

Nvidia’s 10-K regulatory filing released on Wednesday noted that while the company is “finalizing an investment and cooperation agreement” with OpenAI, the maker of ChatGPT, “we cannot guarantee that an investment and cooperation agreement with OpenAI will be reached or that the transaction will be completed.”

Tom Graff, chief investment officer of Facet, said bluntly that the market had already expected good performance from Nvidia this quarter after customers such as Microsoft and Amazon expected to increase data center spending. However, investors hoped to get more information from Nvidia, but got disappointing results.

Graf said: “We were not given specific details on future guidance. If a company like OpenAI may be slowing down spending, this should show up in actual revenue over the next one to two quarters, so the lack of a concrete revenue outlook is concerning.”

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