Barrons market reporter Jacob Sonenshine discusses the importance of Nvidias earnings report to the overall stock market on The Big Money Show.
Nvidia is likely to report on Wednesday that its second-quarter revenue more than doubled. But investors used to its blockbuster results will be expecting even more from the artificial intelligence chip giant.
A beat or a miss on Wall Street expectations could either stoke or shatter an AI rally on Thursday, a day after Nvidia reports earnings for the May-July period.
The company’s stock has surged more than 150% this year, adding $1.82 trillion to its market value and lifting the S&P 500 to new highs. On Monday, it was down 2.2% in afternoon trading, weighing on the index.
The stock is valued at about 37 times its forward earnings, compared with an average of around 29 for the top six tech companies on the benchmark index that includes the chipmaker.
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Investors are expecting another blockbuster earnings report from AI giant Nvidia. ((Photo by Jakub Porzycki/NurPhoto via Getty Images) / Getty Images)
Tech heavyweights, including Microsoft, which are spending heavily to build out their AI infrastructure, have been buying Nvidia’s powerful graphic processing units that allow large amounts of computing quickly. These chips are difficult to replace in present-day datacenters, which has sharply boosted Nvidia’s fortunes.
Nvidia is expected to have recorded a year-over-year jump of about 112% in second-quarter revenue to $28.68 billion, according to LSEG data as of Aug. 23.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| NVDA | NVIDIA CORP. | 126.46 | -2.91 | -2.25% |
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But its adjusted gross margin likely dropped more than 3 percentage points to 75.8% from the first quarter, burdened by the cost of a production ramp-up to meet growing demand.
“They’re not only a benchmark for chips, but they’re also a benchmark for AI as a whole,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns shares in big U.S. tech firms, including Nvidia.
“If Nvidia misses, (investors are) going to sell off every company in AI.”
Surging demand for AI chips has boosted Nvidia’s fortunes. (Photo by Justin Sullivan/Getty Images / Getty Images)
Some investors are concerned about the company’s ability to meet lofty expectations and have questioned the pace of spending on AI by Nvidia’s largest customers.
These worries led to a 20% slump in Nvidia’s stock through much of July and early August, though a recent recovery has left the stock just about 5% below its record high in June.
There may be more trouble brewing around potential production delays of Nvidia’s next generation Blackwell AI chips. CEO Jensen Huang said in May the chips would ship in the second quarter, but analysts have flagged design hurdles that could push the timeline.
This means revenue growth might take a hit in the first…
Read More: Nvidia sales likely doubled, but it may not impress investors