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Nvidia shares fall despite earnings beat

  • Nvidia reported $1.01 in earnings per share, surpassing estimates.
  • The company's stock is up 55 percent since the beginning of this year.

Graphics chipmaker Nvidia saw its stock fall more than 7 percent on Thursday after it reported stronger-than-expected earnings for the second quarter of its 2018 fiscal year, which ended on July 31.

  • EPS: Excluding certain items, $1.01 in earnings per share vs. $0.70 in earnings per share as expected by analysts, according to Thomson Reuters.
  • Revenue: $2.23 billion vs. $1.96 billion as expected by analysts, according to Thomson Reuters.

In terms of guidance, the company said it expects to generate $2.35 billion in revenue, plus or minus 2 percent, in the third quarter of its 2018 fiscal year. Analysts were expecting guidance of $2.13 billion for the upcoming quarter, according to Thomson Reuters.

Strong reactions to earnings results are not unusual for Nvidia, which is popular with investors these days as the company has emphasized the importance of its graphics processing units for artificial intelligence. In May Nvidia stock rose more than 13 percent after the company released its earnings results for the previous quarter, beating estimates on both EPS and revenue. Ahead of earnings on Thursday Nvidia stock closed down more than 4 percent.

Revenue was up 56 percent year over year, with the company's Datacenter revenue -- including sales of GPUs to public cloud providers like Amazon Web Services -- leading the way at 175 percent revenue growth, even though it was up just 2 percent sequentially. That -- and selling on the news -- could explain the stock drop despite the earnings beat, Patrick Moorhead of Moor Insights & Strategy told CNBC. Indeed, sales in the Datacenter segment ended up below the FactSet analyst estimate, according to StreetAccount.

Nvidia's gaming revenue -- the biggest contributor to the company's top line -- was up 52 percent year over year, and it beat analysts' estimates, according to StreetAccount.

Sentiment around Nvidia has continued to be generally positive since then. Last month Canaccord Genuity raised its estimates for Nvidia "yet again" as it sees continuing strength in the gaming and automotive markets.

The opportunity around cryptocurrency has caused some analysts to become more optimistic about Nvidia. Two months after Pacific Crest downgraded Nvidia stock, the company made a U-turn and raised the stock's rating.

"Our strategy is to stay alert to this fast-changing market, knowing that GPUs are highly efficient at running the algorithms used to mine cryptocurrencies," Nvidia executive vice president and chief financial officer Colette Kress told financial analysts on the company's quarterly earnings call.

Nvidia's next quarter could see gains as the company increases the sales of its Volta Tesla V100 GPUs, which will also be listed under the company's Datacenter business -- shipments of GPUs based on the Volta architecture have indeed begun, Nvidia said. The quarter was a transition in the move from Pascal architecture to Volta, Nvidia CEO Jen-Hsun Huang said on the conference call.

Volta is especially designed to accommodate AI workloads, not unlike Alphabet's second-generation tensor processing unit (TPU), which will become available for anyone to use exclusively on Google's public cloud. Meanwhile Intel has been cooking up chips that are more geared toward AI, and Microsoft said it's working on an AI coprocessor for its HoloLens mixed reality headset.

"Nvidia GPU is basically a TPU that does a lot more," Huang said.

In the quarter Nvidia did not receive revenue as a result of its patent license agreement with Intel. That deal wrapped up in the first quarter of the 2018 fiscal year, when revenue came out to $43 million, Nvidia said.

In May Softbank disclosed that it had taken a stake in Nvidia through its Vision Fund, sending Nvidia stock up 1.8 percent.

Nvidia stock -- the best performing stock of the year, as CNBC's Tae Kim noted on Wednesday -- is up 55 percent since the beginning of the year, according to FactSet.