Why did Nvidia shares slip despite strong results?

My previous article mentioned that it is extremely difficult for artificial intelligence to achieve true commercialization. Over the past week, global AI-themed stocks have seen a significant decline. Nvidia, for example, experienced a brief uptick in its share price after announcing its quarterly results, only to fall sharply shortly thereafter. In fact, the results of Nvidia were stronger than market expectations, and founder Jensen Huang also highlighted that fourth-quarter sales remain robust, which should have supported the share price. Why did these developments provide only fleeting support?

There are several reasons, but the simplest one is that Jensen Huang has begun relying on financial engineering to bolster Nvidia’s performance. 

While many retail investors still accept these tactics, institutional investors have started to question them. One key detail that many investors and analysts overlooked appears in Nvidia’s third-quarter earnings report:

“There is no assurance that we will enter into definitive agreements with respect to the OpenAI opportunity or other potential investments, or that any investment will be completed on expected terms.”

This statement triggered doubts among investors that Nvidia’s partnership with OpenAI may merely be a manufactured talking point designed to sustain hype in the AI market and keep Nvidia’s valuation elevated.

In fact, Nvidia’s announcement in September that it intended to invest US$100 billion (HK$780 billion) in OpenAI had already led the market to question the valuations of Nvidia and its peers. OpenAI later disclosed that the capital it raised would be used to pay Oracle for cloud services – up to US$300 billion over five years. Oracle, in turn, plans to purchase tens of billions of dollars’ worth of Nvidia chips annually, as it needs to invest US$40 billion in chips and related equipment merely to build out its Texas data center.

This triangular arrangement creates a closed-loop investment ecosystem in which the three technology firms simultaneously act as each other’s customers, suppliers, and investors.

However, if OpenAI fails to generate profits or is unable to raise new capital, this ecosystem could collapse. Therefore, when Nvidia stated in its earnings report that it could not guarantee the finalization of agreements with OpenAI, it was only natural for the market to react with concern.

Andrew Wong is a veteran independent commentator