Nvidia shares drop 7% in extended trading session despite strong Q2 results, $50 billion buyback

Shares of Nvidia, the best-performing stock of S&P 500 in 2024, slipped around 7% during the extended trading session despite the company posting strong results for the second quarter.

For the three-month period ended July 28, the AI chipmaker posted a revenue of $30.4 billion, which marked a jump of 125% as against year-ago period. The revenue was also higher than the estimate of $28.7 billion, shared by analysts tracked by the London Stock Exchange Group (LSEG).

The company also logged a triple digit growth in net income, which came in at $16.6 billion in Q2. This was up 168% year-on-year (YoY).

The adjusted earnings per share came in at 68 cents, which was up 125% YoY and higher than the consensus estimate of 64 cents.

The company's board also gave the nod to the proposal to buyback shares amounting up to $50 billion.

Why Nvidia shares declined

After the results were out, Nvidia shares settled 2.1% lower at $125.61 on the Nasdaq Composite. In the extended trading session, it plunged by around 7% to $116.95.

The decline in stock was linked to the company's gross margin and revenue guidance not meeting the high expectations of investors, analysts said.

The gross margin in Q2 came in at 75.1%. Though higher as compared to 70.1% in the year-ago period, it marked a decline from 78.4% in Q1.

For the entire fiscal year, Nvidia sees gross margin in the "mid-70s" range, which could be lower as compared to the consensus estimate of 76.4%.

Meanwhile, Nvidia's revenue guidance for Q3 is above the average estimate of analysts, but lower than the upper end of their projections. The company sees revenue at $32.5 billion in the third quarter, which is higher than the average estimate of $31.9 billion. However, some of the analysts had projected the Q3 revenue to touch as high as $37.9 billion.