NVIDIA Corporation (NASDAQ:NVDA) shares were priced for perfection heading into the company’s earnings report this week.
The best-performing S&P 500 stock of 2016 was off to another torrid start this year, and expectations were ultra high. For the most part, the graphics chipmaker delivered: its profit and revenue both beat analyst estimates, and its guidance was strong as well.
Yet the stock sold off more than 5% on Friday, for three key reasons. TheStreet outlines the first and most important one, which involves datacenter processor sales:
Nvidia’s Datacenter revenue, which covers products featuring its Tesla server GPUs, came in at $416 million, below a $423 million consensus. Though the segment’s sales still rose 175% annually (close to the April quarter’s 186% growth), they only grew 2% sequentially.
Next, automotive performance was also weaker than expected:
Nvidia’s Automotive division, which supplies Tegra app processors for infotainment systems and Drive PX boards for autonomous driving systems, also fell slightly short of expectations, with revenue of $142 million (up 19% annually) missing a $146 million consensus.
Finally, margins are also beginning to be a concern:
Though Nvidia beat consensus revenue estimates by $270 million, its adjusted gross margin only hit a guidance range midpoint of 58.6%. In addition, the midpoint of its October quarter GM guidance is only at 58.8%.
These seemingly small factors were more than enough to spur a big sell-off for NVIDIA, which simply had no room for error whatsoever. It’s a reminder that the highest-flying stocks are always susceptible to big pullbacks, and sometimes the catalysts for downturns might be difficult to understand.
The future is still very bright for NVIDIA as a company, because it has huge opportunities in many high-growth industries. But there are going to be major bumps along the way, which is par for the course when a wildly popular stock runs up too far, too fast.
NVIDIA Corporation shares closed at $155.96 on Friday, down $8.78 (-5.33%). Year-to-date, NVDA has gained 46.45%, versus a 10.22% rise in the benchmark S&P 500 index during the same period.