Nvidia Stock Falls After Strong Start Despite Robust Sales Forecast

Margin Concerns Overshadow Impressive Earnings / Reuters

Nvidia Corporation recently unveiled its fourth-quarter earnings, sparking initial excitement among investors with figures that exceeded expectations, yet the stock experienced a surprising decline shortly after a promising opening. The chipmaking giant reported adjusted earnings per share of $0.89 for the quarter ending January 26, 2025, climbing from $0.81 the previous year and surpassing analyst predictions of $0.84. Revenue soared to $39.3 billion, marking a remarkable 78% increase year-over-year and topping the anticipated $38.16 billion. The standout performer was Nvidia’s data center segment, generating $35.6 billion, a 16% jump from the prior quarter, and beating estimates of $34.1 billion. Despite these stellar results, Nvidia stock price trends shifted downward, dropping approximately 3.5% by mid-morning on February 27, 2025, after an upbeat start. This unexpected retreat has left market watchers analyzing what drove the Nvidia stock market performance to falter despite such a solid foundation.

The company’s forward-looking guidance for the first quarter added another layer to the story. Nvidia projected revenue of $43 billion, outpacing the consensus forecast of $42.05 billion, signaling continued strength in demand for its cutting-edge AI Blackwell chips. However, the spotlight quickly turned to the gross margin outlook, which appeared to unsettle investors. Management guided for a non-GAAP gross margin of 71%, a noticeable dip from the 73.5% achieved in the fourth quarter, attributed to the ramp-up costs of Blackwell AI supercomputer production. CFO Colette Kress elaborated that margins are expected to hover in the low 70s during this transition, with a potential rebound to the mid-70s later in 2025 as production stabilizes. This temporary margin compression, tied to Nvidia Blackwell chip sales growth, seems to have overshadowed the positive Nvidia revenue forecast for Q1 2025, prompting a sell-off as investors recalibrated their expectations for short-term profitability.

Delving deeper into the earnings call, CEO Jensen Huang provided insights that both reassured and intrigued the market. He emphasized the surging demand for post-training compute power, a critical driver behind Nvidia’s AI chip market trends. Huang highlighted that next-generation AI models, designed for reasoning and long-thinking processes, require exponentially more resources, positioning the Blackwell architecture as a cornerstone for future growth. "We’ve hit billions in sales in Blackwell’s first quarter of availability," he noted, underscoring the rapid adoption of this technology. Interestingly, Huang also addressed competitive pressures, particularly from Chinese AI firm Deepseek, whose low-cost models had sparked concerns about potential threats to Nvidia’s dominance. Rather than dismissing the rival, he praised Deepseek’s innovations, suggesting they fuel broader demand for Nvidia’s inference-focused chips, which could bolster Nvidia competitive analysis in AI over time. This unexpected optimism offered a counterpoint to fears of eroding market share, yet it wasn’t enough to stem the tide of investor apprehension on the day.

Beyond the headline numbers, other factors may have contributed to the Nvidia stock price drop causes on February 27, 2025. The gaming segment, a historical strength for the company, reported $2.5 billion in revenue, down 22% from the previous quarter and 11% year-over-year, hampered by supply constraints. This softness could have raised red flags about Nvidia’s diversification strategy amidst its heavy reliance on data center growth. Additionally, sales to China, a vital market, remain below pre-export control levels, adding uncertainty to Nvidia data center revenue outlook in the region. Broader market dynamics, such as profit-taking after a prolonged rally in Nvidia stock investment opportunities, might have also played a role, amplifying the retreat despite the company’s fundamentally strong position.

Analysts remain broadly optimistic, with a consensus price target near $170 and a "Strong Buy" rating from multiple sources, reflecting confidence in Nvidia long-term growth potential in AI. The rapid success of Blackwell, coupled with Huang’s vision of emerging AI frontiers like agentic and physical AI, reinforces the company’s leadership in the Nvidia AI technology innovations space. However, the immediate market reaction suggests a disconnect between these long-term prospects and short-term financial nuances. The dip in gross margins, though temporary, appears to have triggered a reassessment of Nvidia stock volatility factors, overshadowing the otherwise bullish Nvidia quarterly earnings report analysis. For investors, this moment highlights the delicate balance between robust sales momentum and the profitability pressures inherent in scaling next-gen technologies, a narrative that will likely shape Nvidia’s trajectory in the months ahead.