Nvidia lags chip rally despite 85% revenue growth

Nvidia Corp. is trailing the semiconductor rally even after reporting 85% revenue growth, as investors rotate into other chip stocks.

"Smart money is fading Nvidia while the rest of chips are soaring," Invezz reported, citing the divergence between the AI chip leader and the broader semiconductor sector.

Nvidia reported 85% revenue growth and guided for about $91 billion in revenue next quarter. Chief Executive Jensen Huang described the AI buildout as "the largest infrastructure expansion in human history." Despite the blockbuster results, NVDA stock has lagged the semiconductor sector.

The rotation suggests the AI trade is broadening beyond Nvidia, potentially capping the company's upside while supporting the broader semiconductor sector. The divergence points to potential peak-of-cycle concerns for Nvidia despite strong fundamentals.

Nvidia trades at 23.5 times forward earnings, well below its five-year average of 34 times, according to Seeking Alpha. The company's operating income grew 147%, vastly outpacing its valuation multiple. Supply chain obligations of $95 billion over three quarters imply at least $285 billion in revenue, further validated by hyperscaler capex guidance of $710 billion to $725 billion.

The S&P 500 fell on tech losses while the Dow Jones Industrial Average rose 140 points, reflecting the divergence between AI-heavy technology stocks and the broader market. Iran talks and PCE data added to cross-currents, with investors weighing geopolitical risks against inflation data.

The rotation into other semiconductor names reflects a view that Nvidia's dominance may have peaked relative to the sector. While Nvidia's H200 GPUs recover their $30,000 cost in 2.3 years, according to Seeking Alpha, investors are looking for value in chipmakers that have lagged the AI leader.

For investors, the key question is whether Nvidia's valuation discount represents a buying opportunity or a warning sign. If the rotation continues, Nvidia's upside may be capped even as the broader semiconductor sector benefits from broadening AI demand. The next catalyst will be Nvidia's Vera Rubin ramp, which could trigger a re-rating if results beat consensus.

This article is for informational purposes only and does not constitute investment advice.