Written by Alshiya Bajwa
(Reuters) – Wall Street is betting on Nvidia’s explosive quarterly report on Wednesday. Investors are looking for evidence that the AI chip maker can sustain explosive growth and stay ahead of rivals, sending the company’s stock near all-time highs.
The results are the latest test of the Wall Street trade that has turned Nvidia into the biggest winner of the generative AI boom, thanks to its chips that are essential to powering technologies from Google’s Gemini to OpenAI’s ChatGPT. Dew.
“There’s a lot riding on Nvidia’s earnings. Nvidia is the most important stock in the sector,” said the founder and CEO of GraniteShares, an ETF that invests in semiconductor companies. Will Lind said.
A more than six-fold jump in stock price since the start of 2023 has made NVIDIA the third most valuable company on Wall Street, with a value of more than $2.3 trillion.
The company’s 89% share price increase through 2024 helped lift the overall market, which now accounts for 5% of the S&P 500, according to LSEG data.
Analyst expectations for Nvidia’s future earnings are rising faster than the stock price. That leaves the stock trading at about 35 times forward earnings, down from a peak of more than 80 times last June, according to LSEG data.
Nvidia’s impressive valuation may still have room to grow. “This is an underestimate compared to expectations,” Lind said.
Analysts on average expect NVIDIA to report a 242% increase in revenue to $24.6 billion in the fiscal quarter ending in April, according to LSEG data as of May 17. Data shows the company’s second-quarter sales are expected to rise nearly 97%.
Analysts expect first-quarter net income to be $12.83 billion, up from $2.04 billion a year earlier.
Over the past few quarters, demand for Nvidia’s AI processors has outpaced the number of chips its contract manufacturer Taiwan Semiconductor Manufacturing can produce.
“The only thing holding Nvidia back right now is supply,” said Inge Heydon, a partner at GP Bullhound, an investment firm that owns Nvidia shares.
Investors are also concerned about U.S. government restrictions on exports of Nvidia’s top-of-the-line AI chips to China.
Investors are betting on Nvidia’s plans to develop products for the Chinese market after the share of revenue from China fell from about 22% in the third quarter to about 9% in the fourth quarter due to export restrictions. Awaiting updates on the chip.
Nvidia is also grappling with tough comparisons after its revenue tripled in several quarters last year.
“As the numbers get bigger, it defies the law of big numbers and the percentage beats start to get smaller and smaller,” said David O’Connor, an analyst at BNP Paribas Exane.
Rising prices for high-bandwidth memory chips used in AI semiconductors could also weigh on Nvidia’s profits, with analysts expecting second-quarter adjusted gross margins of about 77% in the first quarter. is expected to be 75.8%.
GP Bullhound’s Heydorn said gross margins may take some hit due to “higher and higher memory costs.”
Analysts generally remain confident in Nvidia’s growth, as tech giants from Microsoft to Meta Platform drive billions of dollars in data center spending in the race for generative AI.
According to research firm Canalys, global spending on cloud infrastructure services could increase by 20% in 2024, compared to 18% in 2023.
Ido Caspi, an analyst at Global Both this and the challenge of exceeding NVIDIA’s proven performance limit our options.” .
“We still believe NVIDIA will be the industry leader for the foreseeable future.”
(Reporter Arsheeya Bajwa in Bangalore; Editing by Arun Koyyur)
