Content courtesy of Dimensional Fund Advisors, Author Wes Crill, PhD Senior Investment Director and Vice President
I try my best to avoid lofty expectations for my favorite sports teams. It’s fun to get excited about the upcoming season, but high expectations don’t leave much room for satisfactory outcomes. Anything short of a championship, and I’ll be crestfallen.
Nvidia is in a similar predicament. On the one hand, the company recently reported a second quarter revenue of $30 billion, up a whopping 122% from a year ago. (Footnote 1) To put this in perspective, the year-over-year earnings growth on the S&P 500 is 11.3%. (Footnote 2) Despite this, Nvidia’s share price declined following its earnings announcement on August 28.
It may seem counterintuitive for the stock to drop after reporting earnings of such magnitude. But this could indicate huge earnings growth was already priced in by the market. When expectations are sky-high, anything short of perfection may be a disappointment. The Philadelphia Eagles do the same to me nearly every year.
exhibit 1
Nvidia Share Price
August 27, 2024–August 29, 2024
Past performance is not a guarantee of future results. Source: FactSet. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. Named securities may be held in accounts managed by Dimensional.
Footnotes
1. All earnings figures sourced from FactSet.
2. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global.
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