Nvidia (NVDA), the darling of AI and technology investors, will report results from its first quarter of fiscal year 2025 on May 22. The details of that release will either support or undercut Nvidia’s massive $2.2 trillion valuation and the investment community’s obsession with AI stocks.

Let’s establish the context for this much-anticipated earnings release. We’ll cover why investors are excited about NVDA’s first quarter, key metrics to watch, challenges and opportunities for the chip designer and analyst expectations for the near and long-term.

Anticipation For Nvidia’s Earnings Report

Nvidia has been working on AI solutions since 2012. In that year, the company launched an AI application that could classify images. Called AlexNet, the application was trained in days and ran on two of Nvidia’s programmable GPUs. The realization that GPUs could accelerate machine learning versus regular processors shaped a new strategic direction for Nvidia. That’s essentially when the company began its quest to become a leader in AI solutions.

Eleven years later in 2023, ChatGPT sparked a race to launch generative AI solutions. From the big tech companies to niche software providers, seemingly everyone started working to get their generative AI tools into the hands of eager customers.

Nvidia, now the dominant leader in AI hardware and software, has benefited directly from the AI application race. The company’s fiscal year 2024 earnings releases show an increasing demand for its AI products. By year-end, Nvidia’s AI division, called Data Center, had grown its annual revenue 217% from the prior year. Company-wide revenue grew 126%.

The growth fueled a tripling of the NVDA stock price between May 2023 and May 2024. That value spike prompted rumors of an upcoming Nvidia stock split and divided many investors into two camps. Some say Nvidia is fairly valued. Others argue the stock is overpriced and the opportunity for investors to benefit from Nvidia’s AI success has passed.

This first quarter earnings release could quiet the overvaluation argument or turn it up. More specifically, Nvidia’s recent performance will speak to the company’s ongoing growth potential and the runway for value creation in AI generally.

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NVDA’s Key Metrics To Watch

The metrics to watch in NVDA’s first quarter earnings report include:

  1. Topline revenue growth. Nvidia expects revenue of $24 billion, plus or minus 2%. That would equate to a 233% increase versus the first quarter revenue in the prior year of $7.19 billion. Sequential revenue growth would be 8.5%.
  2. Data Center revenue growth. Data Center revenue was $4.3 billion in last year’s first quarter and $18.4 billion in the fourth quarter.
  3. Gaming revenue growth. Gaming revenue was $2.2 billion in last year’s first quarter and $2.9 billion in the fourth quarter.
  4. Gross margin. Non-GAAP gross margin was 66.8% in last year’s first quarter and 76.7% in the fourth quarter. For this first quarter, Nvidia has guided to a non-GAAP gross margin of 77%, plus or minus 50 basis points.
  5. Operating expenses. The company’s non-GAAP operating expenses were $1.8 billion in last year’s first quarter and $2.2 billion in the fourth quarter. The non-GAAP operating expenses guidance is $2.5 billion.
  6. Adjusted diluted EPS. Non-GAAP diluted EPS was $1.1 in last year’s first quarter and $5.2 in the fourth quarter.

Upcoming Challenges And Opportunities For Nvidia

Nvidia will face these challenges going forward:

  1. Growing competition from other chip makers, including Advanced Micro Devices
    and Intel
  2. Steep investor expectations for AI stocks may inhibit further price appreciation going forward. A slightly positive result in the upcoming quarter could be met with indifference from investors who expected more.
  3. A supply imbalance recently announced by Taiwan Semiconductor (TSM) could limit Nvidia’s growth potential over the next several months.
  4. A restriction on AI chip sales to China was imposed on Nvidia by the U.S. government last September. The restriction hasn’t tempered Nvidia’s growth story so far, but it is a factor to watch.

Nvidia’s largest opportunity lies in product development. The company can leverage and extend its dominant position by continuing to roll out faster and more powerful solutions.

Fortunately for shareholders, Nvidia has a knack for self-improvement. In March, the company announced its upcoming, next-generation AI offering, Blackwell GPUs. The new GPUs are said to be twice as powerful for training AI models versus Nvidia’s prior-generation chip.

Analyst Expectations

Analysts expect Nvidia to report an adjusted, diluted EPS of $5.57 for the quarter ending on April 28, 2024. That expectation has increased by $0.05 in the last 30 days and by $0.70 in the last 90 days. A $5.57 EPS number would translate to 411% quarter-over-quarter growth and 8% sequential growth.

Notably, two key Nvidia suppliers, Taiwan Semiconductor and SK Hynix, both recently reported surprisingly strong numbers–prompting a small rally on NVDA stock. TSM announced 60% revenue growth in April, while SK Hynix posted 144% quarter-over-quarter sales growth.

It’s also worth pointing out that Nvidia has delivered positive revenue and earnings surprises in seven of the most recent eight quarters. So it is likely that the official revenue guidance of $24 billion was a conservative view when Nvidia published it in February.

NVDA Stock’s Long-Term Outlook

The consensus price target for NVDA stock is $999, representing 12.5% upside. That target already assumes Nvidia will have a positive earnings result for the first quarter.

Longer term, analysts believe Nvidia’s fiscal year 2025 EPS will come in around $24.84—roughly double the fiscal year 2024 result. Like the expectation for the first quarter, that estimate has been trending up over the last three months.

The EPS expectation for the following year is $29.44. That’s a more tempered growth expectation relative to the current fiscal year, but still a significant prediction. The implications are that AI demand has a runway and Nvidia will continue to dominate in this space.

Bottom Line

Investors are eagerly awaiting Nvidia’s first quarter results to gauge the stock’s valuation and the growth potential in AI investing going forward. The likely outcome is a positive earnings surprise, but whether it’s enough to fuel another NVDA rally remains to be seen.

Frequently Asked Questions (FAQs)

What key factors may drive Nvidia’s earnings? 

Ongoing demand for AI chips and related solutions will be a key driver for Nvidia’s first quarter earnings. 

What are analyst expectations for Nvidia’s earnings? 

Analysts expect Nvidia to exceed its earnings guidance with an adjusted, diluted EPS of roughly $5.57 per share. 

How may Nvidia’s earnings impact the stock market? 

Nvidia is the third largest company in the S&P 500, comprising over 5% of the index. If Nvidia reports a very strong or very weak quarter, it could spark a corresponding trend in tech stocks and the market as a whole. 

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