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On Wednesday, Nvidia is set to reveal that its second-quarter revenue more than doubled, and investors expected the blockbuster result.
On Wednesday, Nvidia is likely to report that its second-quarter revenue more than doubled. However, investors accustomed to the company’s blockbuster results will expect even more from the artificial intelligence chip giant.
A beat or miss on Wall Street expectations could either stoke or shatter an AI rally on Thursday, a day after Nvidia reports earnings for May and July.
The company’s stock has surged more than 150% this year, adding $1.82 trillion to its market value and lifting the S&P 500 to new highs.
On Monday, it was down 2.2% in afternoon trading, which weighed on the index. The stock is valued at about 37 times its forward earnings, compared to an average of around 29 for the top six tech companies in the benchmark index, including the chipmaker.
Tech heavyweights, including Microsoft, are spending heavily to build their AI infrastructure and purchasing Nvidia’s powerful graphic processing units (GPUs) that allow for rapid data processing. These chips are currently irreplaceable in modern data centers, which has sharply boosted Nvidia’s fortunes.
According to LSEG data as of August 23, Nvidia is expected to report a year-over-year jump of about 112% in second-quarter revenue to $28.68 billion.
However, its adjusted gross margin is likely to drop more than 3 percentage points to 75.8% from the first quarter, burdened by the costs associated with ramping up production to meet growing demand.
“There’s a strong concern that if Nvidia misses expectations, investors will sell off every company in the AI sector,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which holds investments in major U.S. tech firms, including Nvidia.
Some investors are worried about Nvidia’s ability to meet lofty expectations and have questioned the pace of spending on AI by the company’s largest customers. These concerns resulted in a 20% slump in Nvidia’s stock during much of July and early August, although a recent recovery has left the stock just 5% below its record high reached in June.
Nvidia may face additional trouble regarding potential production delays of its next-generation Blackwell AI chips. CEO Jensen Huang mentioned in May that these chips would ship in the second quarter, but analysts have flagged design hurdles that could push this timeline back.
According to research by SemiAnalysis, such delays could impact revenue growth in the first half of next year. Additionally, margins could be squeezed if Nvidia’s chip contractor TSMC raises fees, a possibility that the Taiwanese firm hinted at recently.
Nvidia will likely forecast a 75% surge in third-quarter revenue to $31.69 billion, ending its five-quarter run of triple-digit growth.
This figure will present tough year-over-year comparisons, especially since revenue exploded 206% to $18.12 billion a year ago. For the past three quarters, Nvidia’s growth has exceeded 200%.
Some analysts have suggested that Nvidia could offset much of the potential hit from the delay in Blackwell chips by substituting those orders with its prior-generation Hopper chips.
Although the Hopper family of processors is less powerful or lucrative than Blackwell, it remains adequate for most AI-related applications.
Investors will also seek updates on Nvidia’s AI processors for the Chinese market, where the U.S. government bans sales of its most advanced chips.
The company’s China-focused processors, reportedly called H20, are less powerful than its best chips but could provide significant business opportunities in a market where domestic competitor Huawei has emerged strongly.
Additionally, there are mounting antitrust concerns regarding Nvidia’s practices. U.S. regulators are investigating whether Nvidia has pressured cloud providers to purchase multiple products and if it is trying to bundle its networking equipment with its popular AI chips.
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