Nvidia investors are currently expecting the chip designer to forecast quarterly revenue above estimates when it reports results on Wednesday. Their main question is, by how much?
Nvidia has played a huge role in the rise of ChatGPT and other generative artificial intelligence apps, virtually all of which are powered by its graphics processors. The company’s shares have nearly tripled in value this year, swelling the company’s market valuation by more than US$700-billion and making it the first trillion-dollar chip firm.
The big rally in its shares means the company has little room for any earnings-related disappointment and anything other than a higher-than-expected forecast could trigger a rout in its stock, some analysts have warned. The results could possibly dictate the direction of the wider market next week, as most of the S&P 500’s gains this year have come from the AI-driven rally in Nvidia and Big Tech stocks.
Inge Heydorn, partner at GP Bullhound, which owns both Nvidia and AMD shares said: “I’ve been covering tech since 1994 and I have never seen an environment where you are so dependent on one company to deliver.” Heydorn added by saying that AI is really the last pillar of growth and everybody is depending on it. If Nvidia shows weakness, they could be in for quite a substantial correction in the market.
Wall Street is expecting the chip company to guide for a rise of about 110% in third-quarter revenue to $12.5-billion, according to Refinitiv. Nvidia only has forecast revenue below estimates once in the past two years.
Citi analysts have recently revealed that they were only modelling a revenue forecast of around $12-billion, but buy-side expectations have gone up to $14-billion. At least 10 brokerages raised their price targets on the stock last week, pushing the median view to $500, which is 15.5% higher than its last close.
Even though the company’s 12-month forward price-to-earnings ratio soared dramatically to more than 80 after its second-quarter revenue forecast of over 50% growth in May, it has come down since then as analysts raise their earnings expectations. Now, it trades at nearly 40 times the consensus earnings for the next 12 months, much higher than AMD’s 29.
Investors are have eyes on the sales at Nvidia’s data centre unit, home to its prized H100 chip used in AI, to see if the valuation can be justified. Analysts said Nvidia is able to meet only half the demand and its H100 chip is selling for double its original price of $20 000, adding the trend could go on for several quarters.
