Nvidia earnings showcase a harsh reality for AI stocks: Investors are getting harder and harder to please

• Nvidia delivered blockbuster quarterly results and a strong outlook, but investors were unimpressed.
• The AI chipmaker's stock fell 5% on Thursday after the big earnings beat.
• Analysts are still bullish on Nvidia, saying the stock reaction is unjustified.

Nvidia crushed Wall Street's earnings expectations, yet the AI chip darling's stock opened Thursday's trading session in the red. It illustrates a painful new reality for the world's most valuable company.

The chipmaker's quarterly results topped analyst estimates on the top and bottom lines. Yet, the numbers didn't translate to major gains for the stock. Shares were trading at $186.76 around midday on Thursday, down 5%.

AI hype has turned into hesitation and fatigue on Wall Street, spilling over into the stock moves of the top chip maker.

Nvidia's earnings used to be a major market-moving event. As recently as May 2023, Nvidia stock surged more than 24% in the trading day following its earnings release. The stock surged 16% after its fourth-quarter results for fiscal 2024, and spiked 10% on earnings the following quarter.

Today, the chipmaker's dominant position in the AI hardware trade is still met with fanfare, including a wave of Wall Street analysts singing its praises. Yet its earnings no longer seem to move the needle for the stock.

"There is no 'good enough' anymore," Futurum CEO and principal analyst Daniel Newman told Business Insider.

Its lackluster move isn't necessarily a result of Wall Street souring on Nvidia, but it does underscore a challenging reality for the leading AI stock: The bar for earnings keeps rising amid signs of AI fatigue.

This is especially true as concerns about AI weigh on the tech sector as a whole. AI hype turned into panic after Anthropic's Claude updates, and Citrini stoked fears about a potential dystopian AI future.

"People love Nvidia's margins, but don't believe they're sustainable. People love the revenue bookings, but don't believe that this capex number can continue. So, it's kind of just like, we love it, but we don't believe it," Newman said.

Yet, others are still more upbeat—and in disbelief that the market has reacted so poorly to the latest results.

Freedom Capital Markets' head of tech research, Paul Meeks, said that Nvidia stock has been "unfairly" underappreciated given its beat-and-raise quarter. The analyst argued that Nvidia should be trading at premium compared to AMD and the broader market.

"What blows me away is that AMD, with a data center business that's 11X smaller than NVDA's, with an inferior profit margin, and with slower prospective revenue growth, trades at a higher multiple than NVDA. Furthermore, with estimates rising today on the Street, NVDA trades at only a slight premium on this year's earnings to the S&P 500," Meeks wrote as Nvidia stock slid.

Analysts at Wolfe Research consider Nvidia a top stock pick.

"Net, the stock reaction notwithstanding, this is a strong report vs. expectations, and offers nothing to change our bullish thesis."

The firm's targets are above consensus estimates, but they note that they expect Wall Street's average estimate to rise as time goes on.