Do Nvidia Earnings Ease Fears of an AI Stock Market Bubble?

There was a lot riding on Nvidia’s (NVDA) earnings report, and the AI ​​chipset giant did not disappoint.

“These results and commentary should help steady the ship for AI trading through the end of the year,” Jefferies analysts wrote in a note on Thursday.

The report released late Wednesday by the company, the epicenter of the AI ​​boom, came at a perilous time for the rise of AI. The debate over whether AI stocks are in a bubble has reached a new level of intensity in recent weeks, driven by concerns about the scale of data center spending in the tech sector, the longevity of AI infrastructure, and the commercial potential of the emerging technology.

The market reaction on Thursday showed that the debate is far from settled. The Nasdaq Composite rose more than 2% early in the session, before sliding to trade nearly 2% lower in the afternoon. Nvidia stock, which jumped 5% Thursday morning, recently fell nearly 3%. (Reads Investopedia Cover the markets here.)

What did the markets like about Nvidia’s earnings?

The sheer strength of Nvidia’s results helped ease AI bubble fears on Wall Street on Thursday.

Nvidia announced that its revenues rose 62% to $57 billion in the last quarter, and that expected sales will rise to $65 billion in the current quarter. Gross margins improved compared to Nvidia’s previous report, and are expected to expand to approximately 75% this quarter.

“Bubbles are irrational, with prices rising despite weak fundamentals. Nvidia’s numbers show fundamentals remain strong,” said David Russell, global head of market strategy at TradeStation.

Additionally, executives on the company’s earnings call addressed investor concerns about AI’s return on investments, monetization prospects, and the longevity of infrastructure.

CEO Jensen Huang emphasized the wide range of applications that Nvidia’s chips power, and cited social media giant Meta’s (META) optimization of ad conversions as evidence that “the move to generative AI represents significant revenue gains for hyperscalers.”

“Thanks to CUDA,” — Nvidia’s Accelerated Compute Programming Interface — “the A100 GPUs we shipped six years ago are still fully functional today,” said CFO Colette Kress. This comment may have been a response to hedge fund manager and AI boom skeptic Michael Burry, who recently accused tech companies of arbitrarily extending the paper life expectancy of their GPUs to reduce the cost of building their data centers.

Now what?

Most of Wall Street agreed Thursday that Nvidia’s outlook is rosy.

“Given these numbers, it’s very difficult to see how this stock doesn’t continue to rise from here,” UBS analysts said. “Ultimately, the tide of AI infrastructure is still rising so quickly that all boats will be lifted,” they added.

But some market watchers remain concerned.

“The AI ​​bubble debate was never about whether or not NVIDIA could sell chips,” said Julius Frank, co-founder of AI company Vertus. “Their outstanding results don’t address the elephant in the room: Will customers who buy all these devices be able to make money from them?”

Others noted that investors may need to be more aware if doubts about the AI ​​boom persist.

“Many of the risks that investors are worried about now, such as big spending and declining asset values, are real,” TradeStation’s Russell said. “We may see continued weakness in stocks of companies borrowing to build data centers, even as the boom continues.”