Nvidia's stock can't keep up with otherworldly expectations

• Nvidia stock slid on Thursday, even after the AI titan's earnings beat across the board.
• While investors are used to Nvidia blowing the doors off, the report showed the smallest beat in several quarters.

Nvidia investors are starting to look a little spoiled.

The AI chipmaker posted another stellar period of earnings after the market close on Wednesday, beating second-quarter forecasts for sales and earnings per share, while also outpacing consensus expectations for third-quarter revenue.

But the seemingly strong report was met with a collective shrug from Nvidia shareholders, who pushed the stock down as much as 7% in post-market trading. Shares were roughly 4% lower as of 10:25 a.m. in New York, putting a slight dent into the company's more-than-700% rally since the start of 2023.

The reaction is reflective of the lofty expectations investors have for Nvidia. It's not enough for the company to beat forecasts — they have to absolutely blow the doors off. It's a precedent they've sent over the past two years.

That bullishness now appears to be working against the stock. If there was any knock on Wednesday's report, it was that it marked the smallest beat in the past six quarters. Despite being a convincing beat, it clearly wasn't enough to wow shareholders.

"I think the modestly negative reaction after-hours reflects some degree of disappointment in the magnitude of the beat relative to buy-side expectations, which are higher than the sell-side," Chandel Willison, a research analyst at M Science, said in a note Wednesday evening. "Additionally, I think some investors were hoping for higher out-quarter guidance."

Ryan Detrick, the chief market strategist at Carson Group, said "it appears the bar was just set a tad too high this earnings season," while also acknowledging Nvidia's immense revenue growth.

Despite tracking Nvidia's move lower immediately after the earnings report, fellow chipmakers Advanced Micro Devices and Micron saw shares climb more than 1% on Thursday.

On a longer-term basis, Wall Street remains bullish on Nvidia. The average forward 12-month price target, as compiled by Bloomberg, is $147.55, roughly 21% above current levels. The second-quarter report did nothing to dissuade the bullishness as the vast majority of analysts reiterated their forecasts and "buy" ratings.

Among the companies biggest bulls is Dan Ives of Wedbush Securities, who said the firm's valuation could hit $4 trillion. He called the latest results a "drop the mic" moment for the company, despite the initial investor disappointment.