Will NVIDIA Meet Its High Earnings Expectations This Week?

NVIDIA, a current favorite tech stock among investors, is expected to release its second quarter results on Wednesday, August 23rd, after the market has closed. Given the company’s impressive performance in the first quarter and its notable revision of sales projections, there’s a heightened level of anticipation around this week’s earnings release.

The recent strength in sales of processors for data centers and artificial intelligence applications are anticipated to have driven a significant increase in Nvidia’s earnings last quarter and for the remainder of the fiscal year. The company is now worth over a trillion dollars, and its stock price has been up by more than 200% this year so far.

As the AI-driven advance in Nvidia and Big Tech companies has been responsible for the majority of the S&P 500’s gains this year (as well as the other American indices like the tech-heavy Nasdaq), the findings might potentially decide the path of the broader market this week. Such is the hype generated by the advances seen in AI at the moment.

Is it all hype though? Will Nvidia meet its expectations and deliver another quarter of strong results? Let’s take a look at what’s been happening for the company lately and what the experts are saying.

Q1 Recap

Nvidia put in an unexpectedly very strong first quarter that sent the stock soaring by 26% in after hours trading at the time. It was already up a staggering 109% since the beginning of the year, so it was a great result.

The company reported a net income of $2.04 billion for the quarter, equivalent to .82c EPS, up from $1.62 billion, or .64c EPS, for the same period in the prior year. The data center group of Nvidia reported $4.28 billion in sales, compared to expectations of $3.9 billion, an increase of 14% annually. Nvidia said at the time that demand for its GPU chips from cloud providers and large consumer internet companies, which use Nvidia processors to train and deploy generative AI applications such as OpenAI’s ChatGPT, had driven performance.

Nvidia’s gaming sector, which includes sales of graphics cards for PCs, was one of the few weak spots, which saw a 38% reduction in revenue to $2.24 billion, compared to estimates of $1.98 billion. The slowdown in the global economy and the anticipation of Nvidia’s newest graphics processing units were cited as the reasons for the drop.

The company at the time said it expected to bring in $11.00 billion in revenue for the second quarter.

Supply Chain Issues and New Competition Could Be Cause for Concern

Nvidia is in pole position within the chip industry right now, with over 80% of the global market sewn up, but there are still some difficulties to overcome if they want to maintain their market share. One such issue is meeting the currently crazy demand for GPU’s.

This issue may seem familiar remembering the huge price increases and low supply of game consoles and PC graphics cards during the pandemic. At the time, GPUs were in short supply due to a number of factors, including production delays, a shortage of labor, difficulties in worldwide shipping, and the continuous, competitive demand from cryptocurrency miners stuck at home.

Part of the reason for the continuing shortfall this time is not so much due to an interruption in the supply of consumer-focused GPUs but rather to the sudden, explosive demand for extremely high-end GPUs intended for sophisticated activities like the training and usage of AI models.

Concerns remain, also as a portion of the demand rise is coming from China, where businesses are hoarding chips out of fear of more U.S. export restrictions.

If the issue persists, it might also cause some purchasers to switch their attention to Nvidia’s competitor AMD, which is aiming to compete with Nvidia’s most powerful product offering for AI processors with its M1300X chip.

Although Nvidia works closely with TSMC, it is also open to partnerships with other companies in order to diversify its operations, create more resilience and improve overall supply.

In the most recent quarterly report, NVIDIA’s CEO and founder, Jensen Huang assured that all of its data center family products, including the H100, Grace CPU, Grace Hopper Superchip, NVLink, Quantum 400 InfiniBand, and BlueField-3 DPU, were all in full production. “We are significantly increasing our supply to meet surging demand,” he said.

What to Expect From Q2

When the chip designer releases its results on Wednesday, investors anticipate that it will post quarterly revenue higher than what was forecast last quarter. There isn’t a whole lot of wiggle room for falling short however, and a disappointing scorecard could trigger a dive in the stock price.

According to Zacks Investment Research, based on 13 analysts’ forecasts, the consensus EPS forecast for the quarter is $1.69. The reported EPS for the same quarter last year was $0.32.

Meanwhile, the market expects a third-quarter sales increase of 110%, to $12.50 billion, as reported by Reuters. Only once in the last two years has the company predicted less than expected revenue.

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