Nvidia, the top AI chip supplier, is set to report its fiscal first-quarter earnings on Wednesday, May 22, 2024, after the market closes. Wall Street anticipates some deceleration following its earlier blockbuster growth. The company's strong financial performance and dominance in the AI chip market have driven its stock price up by 87% in 2024, making it the third most valuable company globally.
Key Takeaways:
Earnings Report Timing: Nvidia will report its fiscal first-quarter earnings on Wednesday, May 22, 2024, after the market closes.
Explosive Financial Growth: Analysts expect Nvidia’s earnings per share to rise by 474% to $5.22, and revenue to increase by 241% to $24.5 billion for the quarter ending in April.
Potential Deceleration: The transition to new chip models may slow growth in the short term, with gross margins expected to shrink slightly.
Positive Analyst Ratings: Major analysts, including BofA and Morgan Stanley, have given Nvidia a "buy" rating with significant upside potential.
Dominance in AI Market: Nvidia's leadership in the AI chip market continues to drive demand, positioning it as a strong long-term investment despite potential short-term fluctuations.
Financial Performance
For the quarter ending in April, analysts expect earnings per share to soar 474% to $5.22, with revenue up 241% to $24.5 billion. Despite these impressive figures, this represents a slight slowdown from the previous quarter's 765% earnings jump and 265% revenue surge. Nvidia's gross margins are expected to shrink from about 77% in the first quarter to a "more normalized" range of 75%-76% in the following quarter.
Nvidia's unveiling of its new Blackwell chip in March has raised expectations. However, the transition from its older H100 chips to the next-generation models may contribute to the anticipated slowdown. Nvidia's chips remain in high demand for data centers used in generative artificial intelligence, sustaining the company's explosive growth.
Market Reactions and Analyst Predictions
Bank of America (BofA) has flagged the potential deceleration as a source of volatility in Nvidia’s stock post-earnings. BofA sees Nvidia reporting strong numbers compared to Wall Street consensus but expects the company's second-quarter guidance to mark the first time sequential growth will be less than 10%.
Despite these concerns, BofA maintains a positive outlook on Nvidia, giving it a "buy" rating and a price target of $1,100, suggesting a 19% upside from recent levels. Morgan Stanley also remains bullish, noting no signs of a pause in growth during the transition to the Blackwell chip, with strong spending trends in AI from newer customers like Tesla and various sovereigns.
Buy or Sell?
Pros:
Strong Financial Performance: With earnings and revenue growing exponentially, Nvidia’s financial health remains robust.
Dominance in AI Market: Nvidia's leadership in the AI chip market continues to drive demand.
Positive Analyst Ratings: Major analysts have given Nvidia a "buy" rating with substantial upside potential.
Cons:
Potential Deceleration: The transition to new chip models may slow growth in the short term.
Market Volatility: Anticipated volatility post-earnings could affect stock performance.
Conclusion
Nvidia’s stock has shown remarkable growth, fueled by its dominance in the AI chip market and strong financial performance. However, potential short-term deceleration and market volatility post-earnings are factors to consider.
For long-term investors, Nvidia still presents a promising opportunity given its leadership in a high-growth market and positive analyst outlooks. Therefore, Nvidia appears to be a buy for those with a long-term investment horizon, despite potential short-term fluctuations.
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