It's a rare moment in global financial markets when everything hangs on a single earnings report. It's been similar for the past few quarters for Nvidia but this one lands at a particularly quiet moment for broader markets and has taken on extra significance.
Nvidia, the AI chipmaker whose stock has helped power the market's feverish rally this year, reports quarterly earnings after the close. Shares of Nvidia, though down 2% on Wednesday morning, are up a dizzying 154% this year thanks to the AI frenzy.
More than that, shares of Nvidia have surged about 3,000% over the past five years. That means anyone who invested $100,000 in the stock back then — when it was little known to many people — would now have roughly $3 million.
The company’s market value is now over $3 trillion, one of only three US companies ever to achieve that milestone.
Nvidia’s outsized roughly 7% weighting in the S&P 500 means that large swings in the stock can have a sizeable impact on the broader market. The chipmaker’s stock has averaged an 8.1% one-day swing in either direction in reaction to earnings, according to Bespoke Investment Group. That has translated to an average 0.5% move in the overall benchmark index.
Investors will look to the AI bellwether for clues about the demand for artificial intelligence when the company reports earnings after the bell. As companies continue pumping cash into developing their AI products and tools, Wall Street in recent weeks has become skeptical about whether artificial intelligence will result in massive productivity gains and a boost to firms’ top lines.
Dave Sekera, chief US market strategist at Morningstar, said investing in AI isn’t only a matter of growth — tech companies also need to invest in AI to keep themselves from falling behind their competitors.
“A lot of that capex spending on AI is needed to protect the existing business from AI upstarts that we see out there, and as firms fail to invest enough in AI and especially in the tech sector, you could become quickly antiquated,” wrote Sekera in a Tuesday note.
Capex, or capital expenditures, refers to large purchases such as buildings and land, as well as the cash spent on maintaining them.
But at least for now, it appears Nvidia has little to worry about in terms of its dominant position as a beneficiary of tech capital expenditures, as Silicon Valley heavyweights continue to expand their investments in AI infrastructure, much of which will go to purchasing chips from Nvidia.
In their own earnings reports earlier this month, Google, Microsoft and Meta Platforms all signaled that they would be upping their AI spending.
Meta said it expects full-year capital expenditures to be between $37 billion and $40 billion, raising the low end of its guidance from the previous quarter by $2 billion. Microsoft said it expects to spend more in fiscal year 2025 than its $56 billion in capital expenditures from 2024. Google projected capital expenditure spending “at or above” $12 billion for each quarter this year. (Even for extremely rich companies, those are big numbers — for Google, its second quarter capital expenditures amounted to about 17% of its total sales).
That should mean that even if the Nvidia hype — which has reached such a point that people are organizing earnings call listening parties as if it’s a championship game — dies down, the company’s fundamentals should remain strong for the foreseeable future.
As Google CEO Sundar Pichai put it, “the risk of underinvesting (in AI) is dramatically greater than the risk of overinvesting.”
Nvidia's Earnings: Key Metrics to Watch
Here are some of the key metrics investors will be watching when Nvidia reports its earnings:
Revenue Growth
Analysts expect Nvidia's quarterly revenue to be around $29 billion, more than double what it reported a year ago. And they anticipate another boost in guidance for future sales. This is a key indicator of the continued demand for Nvidia's chips, and any deviation from expectations could raise questions about the company's growth prospects.
Blackwell Chip Update
Nvidia has to give an update on its next-generation Blackwell chip amid reports of delays and design flaws. The company said in early August that production is on track to ramp in the second half of the year. Concerns about the Blackwell chip delay could weigh on the upside to expectations for fiscal 2025, making management’s comments — especially a reassuring 2025 outlook — critical.
H-200 Chip Demand
Analysts and investors will also be watching for signs that another Nvidia chip, the H-200, is seeing demand that could offset pushing out revenue from Blackwell. If Nvidia delivers solid results with its current slate of chips, it likely bodes well for the next-generation product.
The Bottom Line
Nvidia's earnings report will be a key event for the stock market. Investors will be looking for signs of continued demand for Nvidia's chips, the impact of the Blackwell chip delay, and any commentary on the company's future prospects. If Nvidia can deliver a strong quarter and provide reassuring guidance, it could continue its impressive run. However, if the company misses expectations or provides a cautious outlook, it could trigger a sell-off in the stock, which could have a ripple effect throughout the market.
Nvidia has become a bellwether for the AI market. Its earnings report will be a crucial event for investors and the tech industry as a whole.
