Nvidia is set to announce its second-quarter earnings on Wednesday, with projections indicating that its revenue could more than double. However, investors accustomed to the company’s impressive performance are anticipating even more from the AI chip leader.
The outcome of Nvidia’s earnings report for the May-July period could either fuel or dampen the ongoing AI market rally, depending on whether the company beats or misses Wall Street expectations.
Nvidia’s stock has skyrocketed over 150% this year, adding $1.82 trillion to its market value and propelling the S&P 500 to new heights. Currently, the stock is valued at approximately 37 times its forward earnings, compared to an average of around 29 for the top six tech companies on the benchmark index, which includes Nvidia.
Tech giants like Microsoft are heavily investing in AI infrastructure and have been purchasing Nvidia’s high-performance graphics processing units (GPUs), which are crucial for rapid computing in modern data centers. This demand has significantly boosted Nvidia’s financial success.
According to LSEG data as of August 23, Nvidia’s second-quarter revenue is expected to have surged by about 112% year-over-year to $28.68 billion. However, its adjusted gross margin likely fell more than 3 percentage points to 75.8% from the previous quarter due to the costs associated with ramping up production to meet rising demand.
“Nvidia is not just a benchmark for chips, but for AI as a whole,” stated Daniel Morgan, senior portfolio manager at Synovus Trust, which holds shares in major U.S. tech firms, including Nvidia. He warned that if Nvidia falls short, it could trigger a sell-off across AI-related stocks.
Some investors are wary of whether Nvidia can meet the high expectations and are questioning the pace of AI spending by its largest customers. These concerns contributed to a 20% drop in Nvidia’s stock through July and early August, although a recent rebound has left the stock just 5% below its June record high.
Potential production delays of Nvidia’s next-generation Blackwell AI chips could also pose challenges. CEO Jensen Huang previously indicated that these chips would ship in the second quarter, but analysts have noted possible design issues that might delay the timeline.
This could impact revenue growth in the first half of next year, according to research group SemiAnalysis. Margins might also be squeezed if Nvidia’s chip contractor, TSMC, raises fees, a possibility recently suggested by the Taiwanese company.
Nvidia is anticipated to forecast a 75% increase in third-quarter revenue to $31.69 billion, according to LSEG data. This would mark the end of its five-quarter streak of triple-digit growth, reflecting tough comparisons from a year ago when revenue surged about 206% to $18.12 billion.
For the past three quarters, Nvidia’s growth has exceeded 200%. “We’re reaching the law of large numbers here; once a company reaches a certain size, it can’t maintain the same growth rate,” commented Michael Schulman, chief investment officer at Running Point Capital.
Some analysts believe Nvidia could mitigate the impact of Blackwell chip delays by substituting orders with its previous generation Hopper chips. Although not as powerful or profitable as Blackwell, the Hopper processors are adequate for most AI applications.
Investors will also be looking for updates on AI processors for the Chinese market, where sales of Nvidia’s most advanced chips are restricted by the U.S. government. Nvidia’s China-focused processors, reportedly called H20, are less powerful than its top-tier chips but could help the company capture business in a significant market where domestic competitor Huawei is gaining ground.
Additionally, there are growing antitrust concerns regarding Nvidia’s business practices. U.S. regulators are investigating whether Nvidia pressured cloud providers to purchase multiple products and if it is attempting to bundle its networking equipment with its highly sought-after AI chips.
