Nvidia under pressure after stock's unusual 7-day losing streak
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Nvidia snapped a seven-day losing streak in the stock market on Tuesday, but its mini slump in August has called attention to questions over the AI darling's growth trajectory.
Why it matters: Nvidia is trying to use its massive pile of capital to keep the good times rolling — through a wide assortment of investments and capital deals — while continuing to feed the growing chip needs of the AI hyperscalers.
Zoom in: The company will report second-quarter earnings after the bell Wednesday, and investors want to see a blowout performance.
- Nvidia is expected to record revenue of $92.1 billion for the period — before topping $100 billion in the current, third quarter in what would be its first quarter in 12-digit territory, according to S&P Capital IQ estimates.
- Q2 net income is estimated at $51.2 billion, with gross margins at 75%.
- The reaction to the earnings report will be a "battle between jaw-dropping margins and the broader macroeconomic anxiety over when AI spending will break its own records by a big margin," says Forrester principal analyst Naveen Chhabra.
The intrigue: Nvidia's stock closed up 2.2% Tuesday, ending its longest streak of daily trading declines since June 2019, according to Bespoke Investment Group.
- Investors have zeroed in on the fact that "the pace and magnitude of the upward revisions has started to slow down," Melissa Otto, head of Visible Alpha Research at S&P Global, tells Axios in an email.
Friction point: Mounting bipartisan opposition to data centers — many of which draw substantial computing capacity from Nvidia chips — poses a threat to the company's continued momentum.
- If data center approvals slow down, so too could the demand for AI chips.
Yes, but: Nvidia CEO Jensen Huang has been moving to use the company's massive balance sheet to invest in AI companies and guarantee financing on deals like a sprawling ChatGPT data center slated for Ohio.
- "A lot of attention will also be paid to the off-balance-sheet activity," wrote Brian Mulberry, chief market strategist at Zacks Investment Management, noting that Nvidia has already made 66 investments totaling about $40 billion.
- Those investments have raised concerns about circular financing posing a systemic threat to the AI economy — concerns that Huang has roundly rejected.
The bottom line: The CEO will be under pressure to deliver a rosy outlook at a time when the public's support for AI is wobbling.
- "This shareholder meeting is now beginning to feel like the old Berkshire Hathaway events where people around the world would hang on every word that Warren Buffett had to say," Mulberry wrote.
