Nvidia Stock 7% Surge Traced to Earnings as Chip Rally Faces Test

The 7% figure dates to Nvidia's August earnings

The claim that Nvidia jumped 7% "overnight" is circulating again, but Nvidia did not rise 7% this week. The move happened in late August, when Nvidia reported its fiscal second-quarter results, and it is now being treated as a benchmark. Since then the stock has given back some ground. It closed Oct. 12 at about $226.42, after trading between $224.92 and $229.61 during the session.3 That leaves it about 6% below the record close it set on Oct. 6.6

The August move still matters because it shows what the market is paying for in chip stocks. Reports on its size differ, depending on how each outlet measured it. Investing.com puts the post-earnings move at 7.01%. It also records an earnings-per-share beat of 6.73% and a revenue beat of 4.68% against analyst forecasts.9 A Yahoo Finance technical review found a 7.0% gain across the two sessions around the release, against 0.7% for the S&P 500.1 CNBC's live coverage showed the move building in stages. Shares rose more than 4% after hours, about 6% in early premarket trading and 7.4% later in the premarket. They finished the next regular session up 8.7%.4 InvestingCube also ran a story headlined around a 7% premarket jump after the results.2

The numbers point the same way. The 7% figure is a premarket and two-day measure of a strong earnings reaction. The close on the day was larger.

Why the guidance moved the stock

The forecast drove the reaction more than the past quarter did. Nvidia's CFO, Colette Kress, said the company expects revenue to grow 70% in fiscal 2028. That is well above the 44% analysts surveyed by LSEG had expected. CEO Jensen Huang added that demand is much greater than 70%, but supply limits how much Nvidia can ship.4 Before the report, the stock had fallen in eight of its previous nine sessions. It had also tended to slide after earnings, so the rally broke that pattern.4

The quarter itself was large. Nvidia booked $96.2 billion in revenue for the period ended July 26, up 106% from a year earlier, and earnings per share rose 128%.6 Data center revenue reached $89 billion. Management guided third-quarter revenue to $108 billion, plus or minus 2%, which would be about 12.5% above the prior quarter.1 Vera Rubin, the next-generation platform, began production shipments in August and is expected to make up about 20% of third-quarter data center revenue.1

Analysts reacted quickly. Mizuho, JPMorgan, Bernstein, RBC and UBS all reiterated bullish ratings on Aug. 27, with price targets from $300 to $400. One aggregator puts the consensus target at $343.40.5

The margin and supply problem

The guidance also had a weak spot. Management expects gross margin to fall to about 74% in the third quarter, from 75% in the second. It sees margin bottoming at 71% to 72% in the fourth quarter, partly because memory prices rose more than Nvidia expected.1 Supply is the other limit. Executives expect it to constrain growth through at least the end of fiscal 2028.1

Read together, these points describe a company that could sell more than it can build. Its own costs, though, are rising with the same AI boom it is driving. Memory suppliers are capturing more of that value. Samsung projected record third-quarter operating profit of about 107.4 trillion won, citing stronger demand and higher memory prices.18

Since August, gains have been hard to hold

The Yahoo Finance review found that almost all of Nvidia's gain since the August forecast came in that one burst. In the following six weeks the stock added only 1.2%, against 0.4% for the index.1 October shows how unsettled the market still is. On Oct. 8 a report on OpenAI's revenue, which suggested a roughly $50 billion annualized figure for September, hit AI stocks. Nvidia fell 2.94%, losing $6.99 to close at $230.48.2 The next morning, reports that OpenAI expects to reach about $70 billion in annualized revenue by year-end calmed investors. Nvidia rose about 1.7% before the open.2 A key semiconductor index gained 1.5% that day as the S&P 500 and Nasdaq 100 moved higher.16

StockTitan counts the market story around AI flipping between "boom" and "bubble" 26 times since 2023. It lists the OpenAI scare and the next day's rebound as the 25th and 26th.7 The way investors reacted says more than the numbers did. Nvidia's value now depends partly on whether its customers can pay for AI. For that reason, an accounting question about OpenAI's revenue was enough to knock the chip sector down for a day.2

Competition from custom chips is another pressure. Microsoft announced its third-generation Maia 300 chip and plans to make Maia the main system for running AI models in its own products starting in 2027.6 Nvidia gets about half its revenue from large cloud customers, and one direct customer accounted for 16% of second-quarter revenue. Even so, hyperscale spending with Nvidia more than doubled last quarter to $48.7 billion.6 For now, Microsoft's announcement is a plan, and Nvidia's numbers are still growing.

Is the stock cheap or expensive?

How expensive Nvidia looks depends on which earnings figure is used. On trailing earnings, it trades near 29 times, compared with 21.5 times for the S&P 500.1 On estimates for fiscal 2028, the multiple falls to about 14 or 15 times, which bullish columnists say understates expected growth.68 StockTitan's analysis adds another angle. Since ChatGPT launched, Nvidia's operating profit has grown faster than its share price. That makes it one of only two exceptions among seven AI megacaps, the other being Amazon, whose combined valuation has otherwise risen faster than their profits.7

Our reading is that Nvidia is not the frothiest part of the trade. The risk lies in how concentrated the market has become. Economist Steve Hanke warned this week that semiconductors now make up about 15% of U.S. equity market value, up from about 4% in 2023. Their share of market earnings has risen only to about 12%.12 The S&P 500 is up about 14% this year even though more than 40% of its members are down. Bank of America's Vivek Arya and Bespoke Investment Group counter that the rally is driven by earnings, not speculation.12 The earnings data back them on direction. LSEG figures cited by Reuters point to about 136% year-over-year third-quarter earnings growth for U.S. semiconductor companies, against about 31% for the S&P 500.18

This week's test: ASML and TSMC

The next catalysts come from Nvidia's supply chain. ASML reports on Oct. 14. It has guided to €11 billion to €12 billion in revenue and gross margin of 55% to 57%, and it raised its full-year outlook to €43 billion to €45 billion in July.15 The consensus revenue estimate of $11.68 billion sits below the dollar value of ASML's own guidance range, and upward revisions have outnumbered cuts 11 to 0. ASML shares, however, have fallen an average of 1.6% on its last five earnings days, despite four straight EPS beats.17

TSMC follows on Oct. 15. Its September revenue rose 54.6% year over year, but its stock trails the iShares Semiconductor ETF by more than 32 percentage points this year. Investors are worried that the 2-nanometer production ramp will cut gross margin by three to four points.14 Coverage of TSMC notes strong demand, margin pressure and a capital spending plan of $60 billion to $64 billion.13 Lynx Equity Strategies noted that TSMC's third-quarter revenue growth of 51% beat the top of its guidance. The firm expects AI chip stocks, led by Nvidia, Micron and Sandisk, to keep rising into year-end.20 The sector ETF has strong momentum behind it: it gained 11% in September and 3.6% in the first two days of October.11

Outlook

The August jump of about 7% set expectations that Nvidia has not built on since. It has mostly held the gain while its stock moves with news about its customers' finances. Strong results from ASML and TSMC this week would support the case that profits justify the rally. Weak margin guidance from either company, paired with Nvidia's own expected margin drop, would give more weight to the concentration concerns. Nvidia's next earnings report, expected in November, is when the 70% growth forecast will next be tested.2