The risk when a stock is “priced for perfection” is that investors’ high expectations leave little room for underperformance or error. Positive outcomes are already factored in, and investors assume things will go swimmingly—meaning even a slight hint of vulnerability could lead to a price correction. 

Accordingly, Nvidia’s drop could be a sign that investors are starting to question whether earnings expectations for tech stocks have risen so dramatically in recent years due to AI euphoria that even strong earnings growth won’t be enough to warrant further share price appreciation, Thomas Matthews, Capital Economics’ head of markets, Asia Pacific, explained. But for now, the veteran market watcher said he isn’t worried.

“We think the AI rally has further to run, despite investors’ apparent disappointment with Nvidia’s rapid profit growth,” he wrote in a note to clients Thursday.

Wall Street analysts aren’t backing down from their lofty price targets after the pullback in Nvidia shares either, with most saying the price drop is a buying opportunity. 

Bank of America Global Research analysts, led by Vivek Arya, reiterated their buy rating and raised their price target on Nvidia shares from $150 to $165 after the earnings release yesterday. Nvidia offers “unique growth at a very reasonable valuation” and remains the “key genAI cycle beneficiary,” they wrote in a note to clients, imploring them to “ignore quarterly noise.”

Despite consistent warnings about Nvidia’s stretched valuation, Arya and his team noted that the company trades at roughly 30 to 35 times its calendar year 2025 earnings, and with expectations for 40% plus earnings-per-share growth ahead, they say that’s actually a “compelling valuation.”

Nvidia’s gross margin, a measure of its profitability, fell slightly in the fiscal second quarter, however, to 75.1%, from 78.4% in the fiscal first quarter. And the company forecast its gross margin to be in the “mid-70% range” for the full year 2024, compared to expectations for a hair higher at 76.4%. Declining gross margins can indicate pressure on profits or increased competition, but investors typically wait to see if the drop is a temporary dip or the start of a longer-term trend.

“In terms of the fundamentals, the gross margin was probably the only slightly negative call-out, but it was relatively well explained and was still in line with guidance,” John Belton, a portfolio manager at Gabelli Funds, told Fortune of the issue via email.

Despite the slight margin drop, Nvidia’s earnings were strong in the fiscal second quarter. The company pulled in more than $30 billion in revenue, beating analysts’ consensus estimate for $28.7 billion. And it was a similar story with net income, which rose 168% year over year to $16.6 billion, compared to the expected $15 billion.

Revenue guidance for the fiscal third quarter also topped analysts’ consensus forecast, hitting $32.5 billion. But it slightly undershot the forecasts of a few more-optimistic analysts, and also implied a slowdown in revenue growth to 80% year over year in the coming quarter. 

Overall, Nvidia’s earnings report was a “mic drop moment” for CEO Jensen Huang that confirms the “AI revolution” is here to stay, according to Wedbush tech analyst Dan Ives. 

Ives said that although some optimistic analyst revenue guidance forecasts were “a tad higher” than the actual numbers, Nvidia’s outlook was still “robust,” demand for its AI-critical chips remains strong, and concerns about delays with its new Blackwell chips were “allayed.” To his point, Nvidia said it will see “several billion dollars” of Blackwell revenue in the fiscal fourth quarter.

“Nvidia's results/outlook/conference call only bolstered and validated our bullish view,” Ives wrote, adding “Nvidia has changed the tech and global landscape as its GPUs have become the new oil and gold.”

The tech bulls are out in force

UBS analyst Timothy Arcuri echoed his Wall Street peers' bullish comments in a Thursday note to clients, reiterating his buy rating and $150 price target for Nvidia stock.

Arcuri pointed to growth in Nvidia’s purchase commitments and supply obligations, arguing they are “the most important metric we watch” and have been “historically a harbinger of future growth.” Nvidia revealed it has $27.8 billion in purchase commitments in the fiscal second quarter, as well as $6.7 billion in inventory. That lifted what UBS calls Nvidia’s “total supply” by 40% quarter-over-year—compared to 15% growth last quarter, and no growth in the fourth quarter. “We believe this foreshadows very strong revenue growth over the next few [quarters],” Arcuri wrote of the figures.

Gabelli Funds’ Belton noted that Nvidia also addressed the two primary bear cases against it. 

First, as previously discussed, the company dealt with concerns about delays with its new Blackwell chip by providing guidance for revenues in the fiscal fourth quarter. “A clear sign of confidence,” Belton said.

Second, Nvidia was able to speak to skepticism about its key customers potentially overspending on AI infrastructure, which could mean lower demand in the future. That’s critical, given that nearly half of Nvidia’s fiscal second quarter revenue came from just four customers.

“Importantly, management laid out a compelling case that large consumer internet customers like META, GOOGL, and AMZN are already generating significant returns on AI spending in their core businesses,” Belton said, adding that for AI model and application builders, it’s a similar story. “NVDA again spoke to the urgency with which these companies are ‘clamoring’ for as much infrastructure as they can afford in the hopes of winning the race to commercialize breakthroughs in AI technology.”

Nancy Tengler, CEO and CIO of Laffer Tengler Investments, backed up the idea that AI spending is just getting started, and that the investment has proved worthwhile for most firms, noting that “old economy companies are embracing AI to improve margins.”

“This is not the internet bubble,” she said. “We think the sell-off is an opportunity to accumulate [NVDA] stock.”

Of course, not every Wall Street analyst is bullish on Nvidia. There aren't currently any analysts with a sell rating for the company, but there are five with hold or hold-equivalent ratings. D.A. Davidson's Gil Luria is one of them.

In a note to clients Thursday, Luria said he fears that a decline in demand for Nvidia's chips is inevitable, as its customers begin to focus on the return on investment of their AI spending. "End customers are going to become more scrupulous," he warned.

Luria has a neutral rating for Nvidia and $90 price target, implying a potential 25% drop in Nvidia's share price over the next 12 months.