- Nvidia is scheduled to release third-quarter earnings on Wednesday evening.
- Excitement over the business prospects of AI has boosted Nvidia shares by almost 200% this year.
- This report will not only gauge the strength of Nvidia’s business but also serve as a barometer for the broader AI and semiconductor industries.
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Nvidia (NASDAQ:NVDA)'s highly anticipated third-quarter earnings report, set for release after the market close on Wednesday, is shaping up to be a defining moment for both the company and the broader stock market.
The results are expected to highlight the ongoing surge in demand for Nvidia’s AI chips, which have become the backbone of the generative AI revolution and accelerated computing advancements.
The Stakes for Nvidia
As the dominant player in the AI chip market, Nvidia’s earnings have far-reaching implications. Analysts predict revenue will reach $33.1 billion, up 82% year-over-year, with adjusted earnings climbing 85% to $0.75 per share.
Source: InvestingPro
Profit estimates have been revised upward 32 times in recent weeks, according to an InvestingPro survey, with just five downward revisions, reflecting growing bullishness around Nvidia’s earnings potential.
Investors will focus closely on the tech giant’s outlook for the fourth quarter, the first period to include sales of its next-generation AI processor, Blackwell. CEO Jensen Huang has described demand for Blackwell as “insane,” adding to the buzz surrounding Nvidia's potential to exceed expectations.
This report will not only gauge the strength of Nvidia’s business but also serve as a barometer for the broader AI and semiconductor industries. Past earnings surprises from Nvidia have been market-moving events, and this quarter is unlikely to be an exception.
NVDA stock closed at $147.01 on Tuesday, a tad below its all-time high of $149.65 touched on November 12. Shares have soared 196.9% in 2024, making Nvidia one of the top-performing S&P 500 stocks of the year.
Source: Investing.com
At current levels, Nvidia has a market cap of $3.6 trillion, making the Santa Clara-based AI darling the most valuable company in the world.
Investor Scenarios: Preparing for the Aftermath
Market participants expect a sharp swing in NVDA stock following the print, as per the options market, with a possible implied move of 8.4% in either direction.
As such, investors should prepare for multiple outcomes:
1. A Blowout Quarter and Strong Guidance: If Nvidia beats expectations and raises guidance, the stock could surge to a new record above $150, boosting sentiment across the tech sector. Investors holding Nvidia and related AI plays, such as AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Oracle (NYSE:ORCL), Meta Platforms (NASDAQ:META), and Palantir (NYSE:PLTR) could benefit.
2. An In-Line Report with Conservative Guidance: While Nvidia has a track record of exceeding expectations, conservative guidance could trigger short-term selling. This scenario might signal caution about overestimating the pace of AI adoption.
3. A Miss or Soft Guidance: Given Nvidia’s high valuation, any disappointment could lead to a sharp selloff, impacting not just Nvidia but also other high-growth tech stocks. Investors may consider hedging through options or rotating into defensive sectors of the market.
Those with long-term confidence in Nvidia might use any post-earnings dip as a buying opportunity.
Broader Market Implications
Given Nvidia's stature and its leading role in the AI hype train, its Q3 results will influence not just semiconductor stocks but also other tech companies tied to AI and cloud computing.
Positive updates to Nvidia's corporate outlook for the months ahead could fuel more AI optimism and extend the current market rally. On the other hand, investors may use a less-than-stellar report as an opportunity to take profits.
Additionally, Nvidia’s performance will likely set the tone for the broader market during a period already fraught with economic, political, and geopolitical uncertainty.
Key Takeaway
Nvidia’s Q3 report is more than just an earnings release—it’s a potential tipping point for the AI narrative and broader market sentiment. Investors should monitor Nvidia’s guidance closely and have a game plan to navigate the multiple scenarios that could unfold.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust (NASDAQ:QQQ) ETF. I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.