Nvidia drops 4.6% as margin outlook erases $251 billion

Nvidia's $251 billion single-day loss marked the sharpest repricing of AI infrastructure economics since the Blackwell ramp began.

Nvidia fell 4.57% to $217.55 on Friday, erasing about $251 billion in market value after third-quarter margin guidance disappointed investors.

"Memory expenses could push fourth-quarter gross margin to 71%-72%," Colette Kress, chief financial officer at Nvidia, said on the earnings call, according to Reuters.

The stock's two-day path — up 8.7% Thursday after earnings, down 4.57% Friday — left it roughly 3.7% above Wednesday's pre-earnings close. Q2 revenue reached $96.2 billion, up 106% year over year, with Data Center contributing $89.0 billion, or 92.5% of total revenue. Management guided Q3 revenue to $108.0 billion, plus or minus 2%, but projected gross margin slipping to 74.0% from 75.0%. The midpoint implies 12.2% sequential growth, above the $104.2 billion analyst consensus from LSEG.

The selloff coincided with Fed Chair Kevin Warsh's inflation warning, which pushed the Nasdaq down 0.52% and the S&P 500 down 0.25%. The 10-year Treasury yield hovered near 4.7%, at 20-month highs, adding pressure to growth valuations. Nvidia's forward P/E of 17.9x compares with AMD's 37.2x and Intel's 46.2x, according to Reuters/LSEG data. The next scheduled event is the Goldman Sachs Communacopia + Technology Conference on September 10.

Trading volume reached 195.1 million shares, 37% above the 65-day average, as investors digested the margin trajectory. The stock swung between $216.81 and $229.26 during the session, a 5.74% range, before closing near the low end.

The margin compression stems from rising high-bandwidth memory costs. Nvidia's Q3 guidance assumes no Data Center compute revenue from China, leaving licensing uncertainty as a potential swing factor. Management expects fiscal 2028 revenue to grow about 70%, well above Morgan Stanley's 52% model and the 44% consensus, according to Reuters.

Accounts receivable rose to $63.1 billion from $38.5 billion in January, while inventory climbed to $31.6 billion from $21.4 billion. Free cash flow fell to $21.3 billion from $48.6 billion in the prior period, reflecting the working capital build. Cash and debt securities stood at $56.6 billion against $33.4 billion in total debt. Nvidia returned about $26.0 billion through buybacks and dividends during the quarter, with $99.0 billion remaining authorized — roughly 1.9% of Friday's market capitalization.

Sixty-seven analysts carry an average Buy recommendation with a $334.67 price target, implying about 54% upside from Friday's close, according to MarketWatch. At least 16 brokerages raised their targets following the earnings release, per LSEG data.

The stock's decline on Friday did not reflect demand weakness. Rather, investors repriced the cost of growth: memory inflation, China export restrictions, and customer-designed accelerators from hyperscalers like Google and Amazon all weigh on the margin outlook. Vera Rubin is expected to account for roughly one-fifth of Data Center revenue in the current quarter.

The two-day earnings reaction — a record rally followed by a sharp reversal — shows the market still rewards Nvidia's growth but now demands proof that supply, margins, and China exposure can support a $5.24 trillion valuation. At 12.1 times annualized Q3 revenue guidance, the stock leaves little room for execution slips. The September 10 Goldman Sachs conference will be the first test of whether management can reassure investors on memory supply and the Rubin ramp.

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