Monday May 20 2024 12:51
5 min
Wall Street is betting on a blowout quarterly Nvidia earnings report on Wednesday, with the California-based firm’s stock nearing record highs as investors look for evidence that the AI chipmaker can maintain its explosive growth and stay ahead of rivals.
The results will be the latest test for Wall Street's picks-and-shovels trade, which has made Nvidia the biggest winner of the generative AI boom. Its chips are essential in powering technologies from Google's Gemini to OpenAI's ChatGPT.
Will Rhind, founder and CEO of GraniteShares, which runs an ETF that invests in the chip firm, told Reuters on Monday:
"There is a lot riding on Nvidia's earnings. It is the most important stock in the sector”.
Since the start of 2023, Nvidia shares have surged more than six-fold, making it Wall Street's third-most valuable firm, worth over $2.30 trillion.
At the time of writing on May 20, Nvidia stock ticked up by 1.35% in premarket trading at $937.30.
A stock surge of over 85% in 2024 has helped lift the broader market, with Nvidia now accounting for 5% of the S&P 500 index, according to LSEG data.
The last Nvidia earnings call, which took place in February, saw the stock surge by over 16%, adding $227 billion to the firm’s market cap in a single day.
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Analyst expectations for Nvidia's future earnings appear to have climbed even faster than the company’s shares. The stock last traded at about 35 times expected earnings, down from a peak of over 80 last June, according to LSEG data.
Nvidia's staggering valuation might yet have room to grow. "It is undervalued relative to where forecasts are going," GraniteShares’ Rhind told Reuters.
Analysts on average expect Nvidia to report a 242% jump in revenue to $24.60 billion for the fiscal quarter ending in April, according to LSEG data cited by Reuters as of May 17. Sales in the second quarter are expected to rise almost 97%, the data showed.
Analysts project a net income of $12.83 billion in the first quarter, up from $2.04 billion a year ago.
For several quarters, demand for Nvidia's AI processors has outpaced the number of chips that its contract manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), has been able to produce.
Investors are also concerned about Washington's restrictions on exports of Nvidia's top-tier AI chips to China.
Investors await updates on chips Nvidia is developing for the Chinese market after export curbs reduced its revenue share from China to about 9% of sales in the fourth quarter, down from about 22% in the third quarter.
Nvidia is also facing tough year-over-year comparisons after several quarters of three-fold revenue growth last year.
BNP Paribas Exane analyst David O'Connor explained in a comment to Reuters:
“As the numbers get bigger, you're up against the law of big numbers, and that percentage beat starts to become less and less”.
Rising prices of high-bandwidth memory chips used in its AI semiconductors could also dent margins, with analysts expecting an adjusted gross margin of 75.8% in the second quarter, compared with expectations of about 77% in the first quarter.
Overall, analysts appear confident about Nvidia's growth as technology giants from Microsoft to Meta Platforms boost spending on data centers by billions of dollars in the race for generative AI.
Global spending on cloud infrastructure services is projected to increase by 20% in 2024 compared to 18% in 2023, according to research firm Canalys.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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