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NVIDIA Earnings: What to Expect

Published 2023-08-22, 02:04 p/m
© Reuters.
NVDA
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By Ketki Saxena

Investing.com -- Nvidia, renowned for its high-performance graphics chips in video gaming and cryptocurrency mining, is witnessing a significant surge in its share price this year due to a near-monopoly in producing next-generation chips and software necessary for artificial intelligence (AI) programs, including large language models (LLM). Technology analyst Dan Ives recently named the company as "the Godfather of AI" on Monday.

The launch of ChatGPT last December sparked widespread interest in AI applications. As a result, Microsoft (NASDAQ:MSFT) incorporated the LLM into its Bing search engine earlier this year, prompting Alphabet (NASDAQ:NASDAQ:GOOGL) to launch its own LLM, Bard. Other companies such as JP Morgan (NYSE:NYSE:JPM) and Palantir (NYSE:PLTR) are also exploring AI's benefits. The high demand for AI app development has led to over 100 customers using Palantir's Foundry AI to develop AI solutions.

The wave of interest in AI has been beneficial for Nvidia as traditional CPU-based servers deployed in cloud and enterprise networks are not ideally suited for the performance requirements necessary for training and operating AI programs. Nvidia's H100 chips, which cost upwards of $40,000 apiece, offer the processing power and low energy use that's key to AI research.

Investment in H100 by hyper-scale cloud providers such as Microsoft, Alphabet, and Amazon (NASDAQ:NASDAQ:AMZN) is expected to allow Nvidia to report robust sales and profit for the second quarter. This may also enable CEO Jensen Huang to issue surprisingly good forward guidance for the rest of the year.

Last quarter, better-than-expected sales and quarterly sales guidance of $11.1 billion -- significantly above Wall Street's $7.1 billion estimates -- resulted in a 54% surge in shares, lifting Nvidia's year-to-date return to 221%.

Strong orders could allow the company to beat and guide higher again. For instance, Saudi Arabia has ordered over 3,000 H100 chips, and the UAE has similarly purchased thousands of chips to develop its own LLM, Falcon. This optimism has led analysts to ramp up their earnings outlooks. Over the past 90 days, the consensus Wall Street quarterly estimate has risen from $1.06 to $2.07, and the full-year estimate has climbed from $4.59 to $8.08.

Several analysts have expressed bullish sentiments for Nvidia. Wedbush's Ives expects a bullish outlook from Nvidia that should fuel the tech rally into the rest of the year. KeyBanc analyst John Vinh sees Nvidia's stock heading to $620 due to its unique positioning with limited competitive risks. HSBC analyst Frank Lee believes that earnings upside into fiscal 2025 is yet to be fully priced into Nvidia's stock price and set a price target of $780.

However, supply could be an issue for Nvidia as Advanced Micro Devices (NASDAQ:NASDAQ:AMD) is still developing its alternative to the H100. This means that Nvidia's status as the sole source of these next-generation AI chips could lead it to face production difficulties.

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