Nvidia's Magnificent Growth Expected to Continue, But for How Long?

Nvidia, the leader of the remnants of the Magnificent Seven, is expected to report strong first-quarter results, but questions remain about how long the company can sustain its high growth rates.

Continued Growth and Updates

The tech sector and broader markets anticipate Nvidia's upcoming earnings to understand if artificial intelligence (AI) can continue powering its magnificent growth. Analyst consensus forecasts that the company will achieve another period of significant growth for the quarter, led by further expansion in its profitable data centre business. Investors will also watch for any potential announcement regarding the firm's latest processor, Blackwell. Introduced in March, Blackwell was touted as the world's most powerful chip. The earnings call may be an opportunity to update its progress.

Analyst forecasts predict a substantial increase in Nvidia's bottom line profit to $5.17 per share, compared to $0.82 per share in the equivalent quarter of last year. However, quarter-on-quarter (QOQ) growth is expected to slow, with a forecast of $4.93 per share in the previous three months, indicating the company may find it challenging to maintain extremely high growth rates over the long term. Revenue projections follow a similar pattern, with consensus estimates of $24.7 billion for the current quarter versus $22.1 billion in the last and $7.19 billion twelve months ago.

Performance and Future Outlook

Nvidia's share price increase of 90% so far this year may be justified by earnings. Reported quarterly earnings equate to a high price-to-earnings (P/E) ratio of approximately 77.5 times. However, future performance relies primarily on guidance. Investors will be interested in seeing if Nvidia can maintain its impressive growth for almost two years. Demand for AI technologies appears ongoing, with the new ChatGPT released less than a week ago.

Nvidia has leveraged its estimated 95% market dominance in AI chips to both capture expanding demand and achieve strong profit margins. Rivals are developing their own chips to reduce costs, though performance remains higher for Nvidia currently. Competitors may match this over time. As such, investors will focus intensely on Nvidia's outlook and seek to understand if and when extraordinarily high profits could start to level off to normalise.

Potential Inverse H&S

Nvidia currently reveals characteristics similar to an inverse head-and-shoulder (H&S) formation after dropping from record highs of $974 to $756 to rise to $958. If the pattern is realised, the stock could potentially increase to $1035 based on the measured-move projection method from the breakout point. While a decline to between $882 and $850 would not necessarily invalidate the pattern, a fall below $812 could significantly raise doubt over the predicted price rise.

Source: SpreadEx / NVIDIA

Key Takeaways

Nvidia is expected to report another quarter of strong growth led by its profitable data centre business. However, questions remain over how long the company can sustain its magnificent high growth rate as rivals develop competing chips. Investors will likely focus intensely on Nvidia's outlook to understand if and when profits could start normalising from current levels. The earnings call may also provide an update on the company's latest processor, Blackwell.