Weakest in Two Years
US stocks closed lower Wednesday as investors weighed earnings, Fed minutes, and trade tensions ahead of Nvidia’s results.
The S&P 500 and the Nasdaq lost 0.5% each, and the Dow dropped 224 points.
Fed minutes reflected a cautious stance, warning of "difficult tradeoffs" amid economic uncertainty.
Trade concerns resurfaced after the Trump administration asked US firms to halt some semiconductor software sales to China, pressuring Cadence and Synopsys.
Okta sank over 13% on weak guidance, while Abercrombie & Fitch jumped 16% and Dick’s gained 2% after strong reports.
Nvidia reported yesterday afternoon.
As we've discussed, the growth in data center revenue has been on a rhythm of about $4 billion a quarter since the second half of 2023.
For Q1, data center revenue grew by $3.5 billion. That's the weakest quarterly growth since Jensen Huang declared the technology revolution was underway two years ago in his May earnings call.
So, this is the lowest quarterly growth in data center despite what is broadly known to be insatiable demand for Nvidia's GPUs.
Margins came in dramatically lower. Gross margins fell from 73% to 61%.
Net income margin fell from the mid-50s (percent) to 43%.
And (directly related to that margin hit) they spent a lot of time on the call talking about billions of dollars of charge-offs due to restrictions on chip trade with China.
All of this, yet the stock went up, in after-hours trading - up 4.9% to 141.40 at the time of writing.
Why? As we've discussed over the past several quarters, the Nvidia's supplier, Taiwan Semiconductor, seems to have hit capacity. It seems clear that Nvidia can't chip away at the backlog of demand until new global capacity comes online (which will be in the U.S., next year).
However the data center revenue growth in Q1 was fuelled by networking equipment and inferencing. Both had explosive growth in the quarter, and that is expected to continue.
