Barron’s market reporter Jacob Sonnenshein joins the Big Money Show to discuss how important NVIDIA’s earnings report is to the overall stock market.
Nvidia is expected to report second-quarter revenue more than doubling on Wednesday, but investors accustomed to the company’s stellar performance will be hoping for more from the artificial intelligence chip giant.
Beating or missing Wall Street expectations could either spur or crush a rally in AI stocks on Thursday, the day after Nvidia reports earnings for the May-July quarter.
The company’s shares have soared more than 150% this year, adding $1.82 trillion to its market capitalization and propelling the S&P 500 to new all-time highs. The stock was down 2.2% in afternoon trading on Monday, weighing on the index.
The company’s shares are valued at about 37 times forward earnings, compared with the average of about 29 times for the top six companies in a benchmark index that includes the chipmaker.
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Investors are expecting AI giant Nvidia to post another jaw-dropping earnings report. ((Photo by: Jakub Porzycki/NurPhoto via Getty Images)/Getty Images)
Tech giants like Microsoft are spending billions to build out AI infrastructure, buying Nvidia’s powerful graphics processors that can perform large numbers of calculations quickly. These chips are hard to replace in modern data centers, and Nvidia’s performance is soaring.
According to data from LSEG as of August 23, NVIDIA is expected to report second-quarter revenue of $28.68 billion, up about 112% from the same period last year.
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| NVDA | NVIDIA Inc. | 126.46 | -2.91 |
-2.25% |
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However, adjusted gross profit margins are expected to have fallen by more than three percentage points from the first quarter to 75.8%, due to costs associated with ramping up production to meet increased demand.
“These are not just benchmarks for chips, but for AI as a whole,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which holds shares in large U.S. technology companies including Nvidia.
“If Nvidia fails,[investors]will sell off all their AI companies.”
Surging demand for AI chips has boosted Nvidia’s performance. (Photo by Justin Sullivan/Getty Images/Getty Images)
Some investors are concerned about the company’s ability to meet lofty expectations and have questioned the pace of AI spending by Nvidia’s major customers.
These concerns caused Nvidia’s shares to fall 20% through most of July and early August, but a recent recovery has put the stock just about 5% below its all-time high hit in June.
More problems may be emerging over possible production delays for Nvidia’s next-generation Blackwell AI chips. CEO Jensen Huang said in May that the chips would ship in the second quarter, but analysts have pointed to design snags that could push back the schedule.
That means revenue growth in the first half of next year could take a hit, according to research group Semianalysis.Margins could also be squeezed if Nvidia’s chip contractor TSMC raises fees, a possibility that Taiwan’s TSMC recently signaled.
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Nvidia co-founder and CEO Jensen Huang is scheduled to speak on the company’s latest earnings report after the market closes on Wednesday. (Annabel Chee/Bloomberg via Getty Images/Getty Images)
Nvidia is expected to expect third-quarter revenue to rise 75% to $31.69 billion, ending five consecutive quarters of triple-digit growth and comparing poorly with a roughly 206% increase to $18.12 billion in the same period last year, according to LSEG data.
Over the past three quarters, Nvidia’s growth rate has exceeded 200%.
“We’re approaching the law of large numbers, where once a company reaches a certain size, it’s physically impossible to sustain the same growth,” said Michael Shulman, chief investment officer at Running Point Capital.
Some analysts say Nvidia can offset much of the hit from delays to the Blackwell chips by replacing those orders with the previous generation of Hopper chips, whose processors are not as powerful or profitable as Blackwell’s but are good enough for most AI-related applications.
Investors are also looking for updates on AI processors for the Chinese market, where the company has been banned by the U.S. government from selling its most advanced chips.
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Nvidia’s processor for China, called H20, is reported to be less powerful than the company’s top-end chips but could help the company expand over coming quarters in a key market where domestic giant Huawei has emerged as a rival.
Antitrust concerns are also growing over the company’s practices, as U.S. regulators are investigating whether Nvidia pressured cloud providers to buy multiple products and whether the company tried to bundle its popular AI chips with its networking gear.
