On Tuesday, Nvidia (NASDAQ:NVDA) is set to announce its fiscal Q1 2025 earnings after the market closes. The leading AI chip manufacturer is expected to present another robust earnings report, reflecting the continued success in the AI sector.
Despite the positive projections, some investors are showing concern over the duration of the AI earnings surge, especially in light of the AI market's current $2.3 trillion valuation.
Morgan Stanley (NYSE:MS) analysts have acknowledged the difficulty in predicting the peak of Nvidia's earnings. However, they remain optimistic about the long-term prospects, bolstered by reports of hyperscalers planning to increase their AI spending.
Nevertheless, there is a sense of apprehension about a potential slowdown by the end of the year, which could be triggered by Nvidia's upcoming transition to the Blackwell product line.
The performance of Nvidia is seen as pivotal for the technology sector's direction. A strong quarter could lead to AI stocks consolidating their gains after an average increase of 27% year-to-date.
Morgan Stanley suggests that if Nvidia's revenue surpasses expectations, there could be a 3-15% rise in stock prices, with Innolight and FII highlighted as strategic choices. Conversely, if the earnings disappoint, there might be a 5-10% decline in the sector.
The demand for AI chips is robust, according to supply chain assessments, strong purchasing activity, and increased cloud computing capital expenditures. This positive trend is expected to support AI stock prices in Asia, which are considered undervalued by Morgan Stanley. A favorable earnings report from Nvidia could further validate this outlook and lead to continued outperformance of these stocks.
Morgan Stanley expresses a particularly constructive view on companies involved in GPU, HBM, custom chip design, manufacturing, testing, and rail kits. Their preferred stocks include Nvidia, SK Hynix, DISCO, Advantest, KYEC, TSMC, Wistron, Hon Hai, FII, King Slide, and Innolight, indicating a broad-based endorsement of the AI hardware supply chain.
InvestingPro Insights
As Nvidia (NASDAQ:NVDA) prepares to unveil its fiscal Q1 2025 earnings, InvestingPro data shows a company with strong financial health and market performance. Nvidia's market capitalization stands at a formidable 2.33 trillion USD, showcasing the scale of its influence in the AI chip industry. The company's revenue growth has been remarkable, with an increase of 125.85% in the last twelve months as of Q4 2024, indicating a rapid expansion that could excite investors. This is coupled with a high gross profit margin of 72.72%, reflecting Nvidia's ability to manage costs effectively while scaling its operations.
Two InvestingPro Tips that could be relevant to investors in the context of the upcoming earnings report are: Analysts anticipate sales growth in the current year, which aligns with the positive outlook expressed in the article, and Nvidia is trading at a low P/E ratio relative to near-term earnings growth, which suggests that the stock may be undervalued given its growth prospects. These insights could be particularly valuable for investors weighing Nvidia's performance against the backdrop of the AI market's current valuation.
For those interested in a deeper analysis, there are over 20 additional InvestingPro Tips available on Nvidia, which can be accessed through InvestingPro's platform. To make the most of these insights, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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