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Nvidia earnings offer little cheer for tech shares
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Nvidia earnings offer little cheer for tech shares
Feb 26, 2025 9:35 PM

By Aditya Soni, Noel Randewich and Rae Wee

(Reuters) -Nvidia's quarterly outlook on Wednesday suggested demand from Microsoft, Amazon and other heavyweight tech companies racing to build out AI infrastructure remains robust, though the outcome failed to significantly quell fears of overspending in the booming industry.

Shares of Nvidia fell 1.5% in extended trade, trimming some of its 3.7% gain in the regular session after the dominant AI chipmaker forecast quarterly revenue above analysts' estimates. Microsoft, Amazon, Meta Platforms and Alphabet, among Nvidia's largest customers, were mostly unchanged.

Shares of those companies, among the components of the so-called "Magnificent Seven", have delivered big returns as they raced to dominate emerging AI technology following the debut of ChatGPT in November 2022.

More recently, most of those stocks have stumbled and investors have become more cautious, especially after China's DeepSeek said it achieved significant AI performance at low cost.

While Nvidia delivered a 78% surge in quarterly revenue, it said its first-quarter margin would tighten to about 71% from 73.5%, lower than the 72.2% estimated by analysts, as it ramps production of its new flagship Blackwell AI chips.

"Despite market jitters over DeepSeek's efficient model and early Blackwell deployment challenges, Nvidia's results reaffirm that it continues to lead the AI landscape," said Jacob Bourne, an analyst at eMarketer. "Competitors are making strides but frontier models require the kind of advanced computing resources that Nvidia provides."

Still, the highly anticipated earnings report from Nvidia was met with lacklustre response from technology companies in Asia on Thursday.

Shares of Taiwan Semiconductor Manufacturing Co (TSMC), Nvidia's main supplier of chips, slipped 0.47%, while South Korean chipmakers Samsung Electronics and SK Hynix fell 0.18% and 1%, respectively.

Tokyo's Nikkei technology sub-index was up 0.2%.

"Nvidia's earnings came with much less volatility than expected. The absence of major surprises may have kept sentiment relatively calm," said Yeap Jun Rong, a market strategist at IG.

LOSING SHINE

The launch of low-cost AI models from DeepSeek last month raised fears of a pullback in spending on Nvidia's priciest AI chips and evaporated more than half a trillion dollars of its stock market value in a single day, a record on Wall Street.

Adding to worries, an analyst report suggested Microsoft was scrapping some data center leases.

The Magnificent Seven stocks have retreated from their late-2024 peaks and the group is in correction territory, with the Roundhill Magnificent Seven ETF down more than 11% from its December 17 closing high.

Nvidia has routinely exceeded analyst estimates over the last two years, but the magnitude of its revenue beats has narrowed as it faces tough comparisons from strong growth a year ago.

"DeepSeek rattled investors but given Nvidia's first-mover advantage and the huge infrastructure investment plans from tech giants like Meta, it's an indication that Nvidia's high-end chips will remain in demand," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Magnificent Seven stocks added roughly $11 trillion in market capitalization between the debut of ChatGPT in November 2022 and their combined peak in mid-December 2024, with Nvidia adding $2.7 trillion in market value, making it the world's second-most valuable company at $3.2 trillion.

Nvidia's stock has surged around 1,800% in the last five years. Magnificent Seven stocks on average more than tripled in that time, while the benchmark S&P 500 has gained about 65%.

(Reporting by Aditya Soni in Bengaluru; additional reporting by Caroline Valetkevitch in New York and Noel Randewich in Oakland, Calif.; Editing by Arun Koyyur, Rod Nickel, Marguerita Choy and Lincoln Feast.)

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