The media, citing interviewed experts, report that with a high degree of probability on Wednesday, August 28, Nvidia will publish information on earnings for the second fiscal quarter, which will show that the company’s revenue has more than doubled.
It should not be ruled out as unviable or unrealistic that investors will expect more impressive financial performance indicators for the last quarter from the mentioned giant of the artificial intelligence chip market. This approach is generally characteristic of what can be described as investor perception.
Nvidia is currently one of the main beneficiaries of the so-called artificial intelligence boom that began after the debut of OpenAI’s ChatGPT in 2022. The company develops graphics processing units, which are necessary for training and ensuring the subsequent functioning of machine intelligence systems. Currently, the corresponding products are gradually becoming strategic in a certain sense. This thesis is based on the fact that artificial intelligence is actually the main technology at the current stage of material and digital development of human civilization. AI has the potential for a kind of revolutionary transformation of many dimensions of human life, both at the level of the private being and on a global scale of society and the world as a space of existence of civilization. The development of artificial intelligence is likely to have significant consequences in the economic environment, cultural area, political, and social planes. Against the background of these prospects, graphics processing units can be called a basic element of the technical evolution of human civilization. Amid the mentioned AI potential, Nvidia, which market capitalization this summer exceeded the landmark mark of $3 trillion, has prospects for further financial growth.
It is worth noting that the company’s performance results for the quarter from May to July 2024, information on which will be released on Wednesday, will have an impact on the dynamic of equities associated with artificial intelligence. If the specified result coincides with Wall Street expectations, the value of the corresponding securities will accelerate growth. Financial indicators that turn out to be worse than the forecast may cause the mentioned indicator to move downward.
Since the beginning of the current year, Nvidia shares have risen in price by more than 150%. The company’s market value has risen by $1.82 trillion over this period. Against this dynamic, the S&P 500 index has reached new highs.
Currently, the value of Nvidia shares is approximately 37 times its forward earnings, compared with an average of around 29 for the top six technology companies on the benchmark index that includes the chipmaker. Nowadays, technology giants, including, for example, Microsoft, spend large amounts of money on building their artificial intelligence infrastructure. As part of the implementation of these intentions, they are also buying powerful graphics processing units from Nvidia, the use of which ensures the quick execution of large volumes of computing. The mentioned chips are extremely difficult to replace in data centers. This fact has become what can be called Nvidia’s financial growth platform.
LSEG’s forecast, which was published last week, envisages that the company’s revenue for May- July 2024 will show growth of approximately 112% compared to the result for the same period last year. In monetary terms, the corresponding figure, according to the mentioned forecast, will be fixed at $28.68 billion. At the same time, Nvidia’s adjusted gross margin is expected to show a decrease of more than 3%, to 75.8%, compared to the result for the previous quarter. This forecast takes into account the fact that Nvidia has increased spending to scale up manufacturing to meet consumer demand for its products.
Daniel Morgan, senior portfolio manager at Synovus Trust, says that Nvidia is a benchmark not only for the chip market but also for the artificial intelligence industry as a whole. According to him, the failure of this developer of graphics processing units will be a reason for investors to sell off shares of other firms operating in the area of machine intelligence. It is worth noting that Daniel Morgan owns shares in major technology companies from the United States, including Nvidia.
It is worth noting that there are those among investors who are concerned about the potential failure of the main developer of graphics processing units to meet very high expectations. Also, currently, doubts are spreading in the relevant environment about the pace of growth of expenses on artificial intelligence from Nvidia’s largest customers. It is worth noting that these concerns are already having an effect. For most of July and early August, the value of Nvidia shares was on a downward trajectory. The corresponding indicator fell by 20%. At the same time, the value of the company’s shares has recovered, although not completely. Currently, the corresponding indicator is 5% below the record level observed in June.
In the short term, Nvidia may face problems associated with possible delays in the production of next-generation Blackwell AI chips. In May, the company’s chief executive officer Jensen Huang said that sales of the specified microcircuits would be launched in the second quarter. However, at that time, analysts drew attention to development problems that could cause a revision of the originally planned deadline.
Research group SemiAnalysis suggests that the mentioned problem may cause a slowdown in Nvidia’s revenue growth in the first half of next year. Also in this context, the risk of margin decrease was noted. The corresponding indicator will be on a downward trajectory if Taiwan Semiconductor Manufacturing Company (TSMC), the contractor of Nvidia’s chips, increases fees. It is worth noting that hints on the possibility of such a decision have already been made by the Taiwanese brand.
LSEG’s preliminary estimate provides that Nvidia will also publish a forecast for the dynamic of the indicators of the financial component of its activities this week, which will contain data on expected revenue for the third fiscal quarter at $31.69 billion. The mentioned figure is 75% higher than the result of a year ago. At the same time, it is worth noting that Nvidia’s revenue grew by about 206% in the third fiscal quarter last year. In monetary terms, the corresponding figure was $18.12 billion. It is worth noting that over the last five quarters, the company’s revenue has been on a triple-digit growth trajectory. Over the last three quarters, the corresponding growth has exceeded 200%.
Michael Schulman, chief investment officer at Running Point Capital, says that Nvidia is beginning to face the law of large numbers. In this case, it is implied that the company, having reached a certain size, physically cannot maintain previous growth.
Also, among analysts, there is a widespread opinion that Nvidia can potentially compensate for a significant part of the losses associated with delays of Blackwell chips. In this case, it is implied that the company can replace the corresponding orders with its prior generation Hopper microcircuits. Previous-generation processors are not as powerful and lucrative as Blackwell, but their characteristics are sufficient to ensure the functioning of most artificial intelligence apps.
With a high degree of probability, investors will show interest in updates in the area of machine intelligence chips from Nvidia for the Chinese market. It is worth noting that the United States government has banned the supply of advanced AI microcircuits and equipment for the manufacturing of relevant products in the Asian country. Media reports that Nvidia has developed H20 processors specifically for the Chinese market. These products differ from the company’s advanced chips in their lower power level. H20 may allow Nvidia to strengthen its position in the Chinese market in the next few quarters, which is very important for it as a source of earnings. At the same time, there is a risk that the United States restrictions on the sale of advanced chips in the Asian country in the long term will become what can be characterized as a damaging factor for the company. Also, in the context of forecasting the future of the Chinese microcircuits market, it is worth noting that in this case there is a possibility of active development of the domestic sector of manufacturing of relevant products. Currently, the Asian country is striving for technological sovereignty, which is of particular importance against the background of growing tensions in the space of geopolitical relations, the consequences of which Beijing has already faced. Statements containing relevant theses have already been made by the head of the People’s Republic of China Xi Jinping. Huawei also stated its intention to make efforts in this direction. Other Chinese companies also have plans that contribute to the goals of achieving technological sovereignty.
Moreover, there are growing concerns about regulatory attention regarding Nvidia in the context of its practices for potential antitrust violations. In the United States, authorities are investigating whether the company used pressure in its dealings with cloud service providers to force these firms to buy multiple products.
