Nvidia Surges to Record High Ahead of Earnings

The darling of the AI craze closed at a record high just before its earnings release, but can the company keep growing at this breakneck pace?

Keeping Up With the Good News

Nvidia's shares hit $504 a day before reporting earnings, adding to the 315% gain the share price has seen since the same time last year. Which is substantially more than what analysts expect its sales to increase, with the median forecast for its fiscal Q3 revenue to be up 170% over the prior year. Investors are clearly banking on future prospects, so the focus will likely be on the demand outlook for the coming year.

Generative AI enthusiasm is seen driving the stock, but as a supplier of components, it seems the company has managed to stay away from the most recent controversy in OpenAI and the potential for a new AI hardware device from Apple. That could come up in the post-earnings presser, however. Another potential area of concern that might shake investor enthusiasm is the possibility that costumes might be moving over to AMD, as the company is still facing issues meeting demand. Or a commentary on the potential negative impacts of the sanctions on China.

Full Steam Ahead

Those concerns aside, investors seem to be eager to find positive news from the market leader of AI GPUs, and some of the problems can be considered opportunities from a different perspective. The high demand and prices suggest that NVIDIA still has plenty of room to expand while maintaining its profits, which have grown faster than sales this year. Last quarter saw net income expand by almost 10x over the prior year thanks to expanding gross margins. The company already guided that it expects margins to remain around the current level at least until the end of the year.

The consensus among analysts is that Q3 earnings will step back after last quarter's blow-out and come in at $2.28. Although that's down 15.6% on a quarterly basis, it is still a whopping 400% more than last year's figure. Sales are expected to slow quarterly to $12.2B, but as mentioned, it is still 170% above last year's figure. While the primary focus is on the data centre segment, which covers Nvidia's AI offerings, its now relatively small gaming section could get additional attention as the company includes AI gaming capabilities.

NVDA

Although being in price discovery mode makes projections less certain, using the measured-move of the rising flag ending at $390 sheds some light on potential targets. From the breakout point at $460 upwards, the measured-move projection points to $570. This can come even if the swing support at $475 gives way to bears and will remain valid until 390 succumbs.

Source: SpreadEx / NVIDIA

Key Takeaways

Nvidia's shares hit a record high ahead of its earnings release. Analysts expect strong revenue growth for Q3, with investors optimistic about future prospects despite concerns. The company has managed to avoid recent controversies in OpenAI and may see opportunities in the market. Last quarter, net income increased nearly tenfold. Q3 earnings are expected to decrease from the previous quarter but remain significantly higher than last year. Sales are also predicted to slow but still show substantial growth. Nvidia's focus on AI offerings and gaming capabilities may attract attention.