Nvidia on Cusp of Bursting AI Bubble?

The AI-focused chip company is projected to see its sales double, suggesting that stakeholders with high expectations may not be satisfied with anything lower and opt to sell their shares in light of the potentially positive earnings.​

Positive Results May Not Assure Investors

Nvidia is expected to announce another period of blow-out performance when reporting earnings after the market closes on Wednesday. Thus far, in 2024, the company's share price has increased by 160% despite a minor setback earlier in August. Analyst consensus forecasts Nvidia will more than double its bottom line, reporting EPS of $0.64 compared to $0.25 in the equivalent quarter last year. Revenue is also projected to more than double, reaching $28.7 billion from $13.5 billion in the second quarter of 2023.

Of principal interest to investors will likely be evidence that growth in the data centre segment remains sustainable, as well as any updates on the new Blackwell AI chip following reports of a 3-month delay to its launch due to design issues. Nvidia has stated the launch remains on schedule. Therefore, the earnings report and subsequent CEO statement provide an opportunity to gain further clarity. Markets anticipate data centre revenue of $25.2 billion for Nvidia, which would constitute the vast majority of the company's income. At a minimum, the company is expected to reaffirm current full-year sales guidance, with traders scrutinising commentary around resilience in the current macroeconomic environment in light of recent macro data in the US.

Can Nvidia's Growth Continue?

Analysts note that Nvidia's upcoming earnings report could be highly significant, given the focus on artificial intelligence and concerns about the economy. The results may impact other tech companies and influence overall risk sentiment. However, maintaining very strong growth over time may prove difficult. Even if earnings more than double, investors may feel disappointed if guidance only affirms rather than upgrades the outlook.

On the other hand, Nvidia has overcome challenges before. Its share price fell with the general market in August but recovered for a gain in the month. While some analysts see potential issues this quarter, most feel the stock remains attractive in the long term due to ongoing demand for AI. There was debate around rationalising AI spending across various industries, but other recent reports indicate infrastructure development continues in this area. Investors will likely watch for confirmation of this trend from Nvidia.​

Nvidia Pending Breakout

Nvidia's share price has risen over 40% since August, from a low of approximately $90 to a high of around $132 on Monday. In recent sessions, NVDA has been trading sideways, indicating it may soon move distinctly higher or lower depending on the market response to upcoming earnings. If the $125 support weakens, the stock could fall back towards the low of around $109, or possibly lower, with interim support at $117. However, leaving behind the recent high may see share prices accelerate past the post-stock split high of $137, aiming as high as the 38.2% retracement level of $146.​

Source: SpreadEx

Key Takeaways

Nvidia's upcoming earnings report could impact investor expectations and broader market sentiment as the company is projected to see over 100% growth in both revenue and EPS. However, maintaining such strong growth in the long run may prove difficult, even if it meets already high expectations through affirming full-year guidance. Stakeholders will want to see an upgraded outlook instead. Analysts will scrutinise data centre trends and management comments on resilience amid current economic conditions, too, but market reaction will depend on confirmation that demand for Nvidia's AI-focused products remains robust.​