AI bubble concerns intensify! Nvidia's earnings surpass expectations, but the stock plummeted 5.7% intraday, 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 5.7% to $184.32, marking the largest intraday drop since November 25, and closed down 5.49% at $184.89. This decline came after the company released its Q1 sales forecast, which not only easily surpassed analyst expectations but also announced 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 beyond the next few years, and whether NVIDIA can maintain its dominance as AI shifts from training models to routine task execution.”

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 compute 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 with agentic AI and the practicality of intelligent agents. The industry has reached another inflection point.”

The investor Michael Burry, famous for “The Big Short,” further intensified 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 expected to outperform previous expectations. NVIDIA previously stated these chips will generate $500 billion in revenue by the end of 2026.

She said:

“We believe we have built inventory and supply commitments capable of meeting 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 analyst average of $72.8 billion, though some analysts previously forecast close to $80 billion. Additionally, NVIDIA’s Q4 revenue, EPS, and adjusted gross margin 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 a current concern in the tech industry is the shortage of storage chips. Like most electronics companies, NVIDIA’s products depend on stable storage chip supplies. These chips provide short-term storage for everything from smartphones to supercomputers. Tight supply has driven up storage chip prices and made it more difficult to ship more devices this year.

This tension has also affected the gaming division. Kress said she is unsure whether this issue will ease enough this year to allow the business to recover growth.

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 already 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.

By securing future compute demand through a series of large long-term agreements, chipmakers aim to demonstrate that the AI economy remains strong. However, these relationships are very close—suppliers and customers sometimes hold stakes in each other—and have drawn criticism. Some argue that such “circular trading” could artificially inflate demand.

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