For investors in Nvidia, the last couple of years has resembled a thrilling amusement park ride rather than the traditional trajectory of stock performance. The surge in artificial intelligence (AI) applications has catapulted Nvidia to near-unprecedented heights, with its market capitalization ballooning nearly ninefold since early 2022. After achieving a pinnacle worth celebrating in June — briefly becoming the world’s most valuable publicly traded company — Nvidia faced a sharp decline, losing roughly 30% of its value in just over a month, which equated to an astounding $800 billion in market cap. As it stands, however, the company has shown signs of recovery, recently pushing close to its historical peak values.
The impending quarterly earnings report is posing a significant focal point of discussion among Wall Street investors, with many acutely aware of the volatility that has gripped Nvidia’s stock. Markedly, any hints that the demand for AI might be showing signs of slowing down could have profound consequences for Nvidia’s financial results. Eric Jackson of EMJ Capital proclaimed on CNBC’s “Closing Bell” that the stakes could not be higher: “If they lay an egg, it would be a major problem for the whole market.”
Nvidia’s earnings report is particularly significant in light of its prominent peer technology companies, such as Microsoft, Alphabet, Meta, Amazon, and Tesla, which have recently disclosed their respective earnings reports. Nvidia’s GPUs are integral to the AI ambitions of these tech titans, being utilized for the training of deep learning models and colossal workloads. In the company’s last three quarters, its revenues have surged more than threefold over the year, primarily stimulated by significant growth in its data center business. Analysts anticipate another quarter of triple-digit expansion in revenue, estimating a growth rate of 112% for the forthcoming quarter, with a projected total of approximately $28.7 billion.
However, as investors look forward, it’s essential to note that the year-over-year comparisons are becoming increasingly challenging, with growth expected to decelerate over the next six quarters. Extra scrutiny will be placed on Nvidia’s guidance for the upcoming October quarter, with expectations resting on approximately 75% growth to $31.7 billion. Positive expectations would signal that solid demand persists among Nvidia’s affluent clients for AI infrastructure investment, while a disappointing outlook may rekindle concerns regarding excessive infrastructure spending.
The prevailing narrative that has recently fueled Nvidia’s stock – up by around 8% in August alone – hinges on remarks from key customers, who have passionately reiterated their commitment to investing in Nvidia-related infrastructure. Google’s and Meta’s CEOs have highlighted their investments, expressing that underinvestment is a more substantial concern than overspending. Furthermore, former Google CEO Eric Schmidt conveyed sentiments that indicate major tech corporations are eyeing investments as extensive as $20 billion to $100 billion in processors.
While Nvidia’s profitability has recently shown improvement, troubling questions loom regarding the long-term returns that clients might see from hefty investments in high-cost devices. The company’s CFO, Colette Kress, mentioned in May that cloud service providers could expect $5 in returns for every $1 spent on Nvidia chips over four years. Investors eagerly anticipate more comprehensive statistics in the upcoming earnings call, which may provide further reassurance.
Amid escalating expectations, Nvidia faces critical challenges surrounding the rollout of its next-generation AI chips, branded as Blackwell. Reports have surfaced revealing possible production challenges that could delay pivotal shipments until the first quarter of 2025, despite the company’s previous assurances of a smooth ramp-up. Nvidia is under intense pressure to demonstrate its competitive advantages, especially since its rival companies, including Advanced Micro Devices and various startups, are increasingly targeting the burgeoning AI chip market.
Interestingly, despite potential delays with Blackwell, analysts at Morgan Stanley have observed that demand for Nvidia’s current Hopper chips will likely continue, reaffirming the rationale that immediate needs from customers could absorb the resulting shortfall. Furthermore, another angle represented by HSBC suggests Nvidia may prioritize ramping up the sale of its H200 chips over Blackwell GPU allocations in the interim.
In a market landscape defined by rapid evolution and fierce competition, Nvidia remains at the forefront of the AI chip race. However, amidst the volatility, investor confidence hinges firmly on the company’s ability to strike a balance: maintaining robust growth while reassuring the market of sound returns on investment. The forthcoming earnings report may very well dictate whether Nvidia’s rally continues or falters in the face of mounting skepticism.