Nvidia's Q2 Revenue Expected to Skyrocket: What Investors Need to Know
By Arsheeya Bajwa
(Multibagger) - Nvidia (NASDAQ: NVDA) is poised to announce a more than doubling of its second-quarter revenue on Wednesday, marking another significant milestone for the AI chip titan. However, seasoned investors accustomed to Nvidia's extraordinary performance are setting their sights even higher.
A mere beat or miss on Wall Street's projections could either fuel or derail the AI market rally on Thursday, following the announcement of Nvidia's earnings for the May-July period.
Nvidia's Stock Performance and Valuation
Nvidia's shares have soared over 150% this year, contributing an astonishing $1.82 trillion to its market capitalization and propelling the NASDAQ to new heights. Currently, Nvidia's stock is valued at approximately 37 times its forward earnings, significantly higher than the average of around 29 for the top six tech firms in the benchmark index.
The AI Chip Demand Surge
Tech giants, including Microsoft (NASDAQ: MSFT), have been heavily investing in Nvidia's high-performance graphic processing units (GPUs) to bolster their AI infrastructure. These GPUs are critical for rapid processing in modern datacenters, substantially boosting Nvidia's revenue.
According to LSEG data as of August 23, Nvidia is anticipated to report a staggering 112% year-over-year increase in second-quarter revenue, reaching $28.68 billion. However, the company’s adjusted gross margin is expected to dip by over 3 percentage points to 75.8% from the first quarter, primarily due to the costs associated with ramping up production to meet surging demand.
Market Sentiment and Potential Risks
Daniel Morgan, a senior portfolio manager at Synovus Trust, which holds shares in major U.S. tech firms including Nvidia, stated, "They’re not only a benchmark for chips, but they're also a benchmark for AI as a whole. If Nvidia misses, investors are going to sell off every company in AI."
Investor concerns about Nvidia's ability to meet high expectations and the pace of AI-related spending have led to a 20% decline in its stock during July and early August. Although a rebound has brought the stock to just 5% below its June record high, potential production delays for Nvidia's next-generation Blackwell AI chips could spell trouble. CEO Jensen Huang had promised these chips would ship in Q2, but analysts have identified design challenges that may delay this timeline.
Research group SemiAnalysis has suggested that such delays could impact revenue growth in the first half of next year. Furthermore, margins might be squeezed if Nvidia’s chip contractor, TSMC, increases fees—a possibility the Taiwanese firm recently hinted at.
Future Projections
Nvidia is expected to forecast a 75% increase in third-quarter revenue to $31.69 billion, according to LSEG data, ending its five-quarter streak of triple-digit growth. This reflects challenging comparisons from a year ago when revenue surged approximately 206% to $18.12 billion. For the past three quarters, Nvidia’s growth has exceeded 200%.
Michael Schulman, Chief Investment Officer at Running Point Capital, remarked, "We’re reaching the law of large numbers here; once a company gets to a certain size, it just physically can't keep up the same growth."
Strategic Moves and Regulatory Scrutiny
Some analysts believe Nvidia could mitigate the impact of Blackwell chip delays by substituting orders with its previous generation Hopper chips. While not as powerful or profitable as Blackwell, Hopper chips are adequate for most AI applications.
Investors will also be keen to hear updates on AI processors tailored for the Chinese market. Nvidia's most advanced chips are barred from sale in China by the U.S. government, but the company’s China-focused processors, reportedly called H20, could help secure business in this significant market where Huawei has emerged as a key competitor.
Additionally, Nvidia faces mounting antitrust scrutiny. U.S. regulators are investigating whether Nvidia pressured cloud service providers to purchase multiple products and if it is attempting to bundle its networking equipment with its highly sought-after AI chips.
Breakdown and Analysis
In simple terms, Nvidia is expected to report a massive increase in revenue, driven by the high demand for its AI chips. However, if Nvidia fails to meet the lofty expectations, it could result in a significant sell-off in the AI sector. The company’s stock has performed exceptionally well this year, but potential delays in new chip production and increased costs could pose challenges ahead. Investors should monitor Nvidia’s strategies and regulatory developments closely, as these factors could have significant implications for their financial portfolios.
By paying attention to Nvidia's performance, investors can make informed decisions that could impact their financial health and future investments. If Nvidia continues to grow, it could be a lucrative opportunity, but if it falters, it could signal broader issues in the AI and tech markets.