AI bubble concerns intensify! Nvidia's earnings beat expectations, but the stock plummeted 5.6%, marking the largest intraday decline in three months

Artificial intelligence (AI) chip market leader NVIDIA experienced its worst stock decline in three months after releasing impressive latest earnings guidance. Analysts say the company’s outlook failed to dispel market concerns about an AI bubble.

On Thursday, NVIDIA’s stock in New York fell as much as 5.6%, to $184.58, marking the largest intraday drop since November 25. This decline came after the company released its first-quarter sales forecast, which not only easily surpassed analyst expectations but also reported a 73% year-over-year increase in Q4 revenue.

However, analysts believe the market reaction highlights investor skepticism toward NVIDIA. Previously, explosive sales growth had propelled NVIDIA to become the world’s most valuable company, but now investors are seeking stronger assurances that the AI spending boom can continue.

Hargreaves Lansdown analysts stated in a report after the earnings release that shareholders remain concerned about whether “this wave of AI spending can sustain growth in the coming years, and whether NVIDIA can maintain its dominance as AI shifts from training models to routine task deployment.”

CEO Jensen Huang rebutted these concerns during a Wednesday conference call. He said that customers are already profiting from newly purchased computing power, so they will continue to invest at high levels.

Huang said:

“You need computing power, which directly translates into growth and revenue. I am confident that their cash flow is increasing.

I am very confident in their cash flow growth, for a very simple reason. We are now seeing a turning point for agentic AI and the practicality of intelligent agents. The industry has reached another inflection point.

Michael Burry, the investor famous for ‘The Big Short,’ further fueled market worries on Thursday. He pointed out that NVIDIA’s current procurement commitments total $95.2 billion, compared to only $16.1 billion a year ago. If demand fluctuates, this could pose risks.

NVIDIA’s CFO Colette Kress tried to ease other analyst concerns, including supply constraints. She said the company has secured enough components to meet growing demand.

She told analysts that manufacturing NVIDIA’s most advanced chips remains challenging. However, the current Blackwell product line and the upcoming successor Rubin are still expected to outperform previous forecasts. NVIDIA previously stated these chips will generate $500 billion in revenue by the end of 2026.

She said:

“We believe we have built sufficient inventory and supply commitments to meet future demand, including shipments extending into 2027.”

Storage chip shortages and “circular trading” concerns

NVIDIA’s first-quarter revenue is expected to be around $78 billion, higher than the average analyst estimate of $72.8 billion, though some analysts previously forecast nearly $80 billion. Additionally, revenue, earnings per share, and adjusted gross margin for Q4 all exceeded expectations.

Specifically, NVIDIA’s data center revenue this quarter was $62.3 billion, above the analyst average of $60.4 billion. Other business segments performed weaker. Gaming, once NVIDIA’s main revenue source, brought in $3.73 billion this quarter, below the analyst average of $4.01 billion. Automotive sales were $604 million, versus Wall Street expectations of $643 million.

Analysts believe that a key concern in the tech industry right now is a shortage of storage chips. Like most electronics companies, NVIDIA’s products depend on stable storage chip supplies. These chips, used from smartphones to supercomputers, are in short supply. The tight supply has driven up prices and made it more difficult to ship more devices this year.

This shortage has also impacted the gaming division. Kress said she is unsure whether this issue will ease enough this year to allow the segment to recover.

Regardless, AI data center chips have become a bigger focus. Earlier this month, NVIDIA announced that Meta will deploy “millions” of NVIDIA processors over the coming years, further deepening the close partnership between the two companies.

NVIDIA’s main competitor, AMD, also announced a similar long-term agreement with Meta this week. The chipmaker said the deal could be worth hundreds of billions of dollars.

Through a series of large, long-term agreements, chipmakers are locking in future computing demand to demonstrate that the AI economy remains strong. However, these deals are sometimes criticized for being overly close—suppliers and customers sometimes hold stakes in each other—which some argue could artificially inflate demand through “circular trading.”

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