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All Eyes on Nvidia Earnings: Here's What to Expect

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A shortened trading week brings another busy earnings slate, with more than 900 companies on deck to report quarterly results. While many of the top retail names will provide a glimpse on the health of the U.S. consumer and overall spending, we have one final tech giant from the Magnificent 7 that has yet to deliver its Q4 marks. The long-awaited results out of Nvidia (NVDA - Free Report) are scheduled for today after the close, and investors are eager to see how the chip giant performed in the latest quarter.

Semiconductor stocks have led the way over the past year. Robust demand for products that run cutting-edge artificial intelligence (AI) has boosted investor appetite for companies that produce the chips.

Nvidia has been at the forefront of the generative AI conversation, as the company headlines the graphics chips that are designed for complex computing applications. Several of Nvidia’s customers include fellow members of the Magnificent 7, including Facebook-parent Meta Platforms and Microsoft, as they require thousands of AI chips to run their own advanced offerings. 

Nvidia offers solutions for gaming platforms, enterprise workstations, software for cloud-based virtual computing and 3-D design, and automotive platforms for infotainment systems. A top dog in the AI space, Nvidia also provides data center platforms and systems for use in autonomous driving, accelerated computing, cryptocurrency mining, and robotics.

Nvidia Surpasses Amazon and Alphabet

Considered most preferred by datacenter operators, Nvidia’s GPUs are likely to help the company grab a larger market space. Companies like Amazon and Alphabet are expanding their global operations, driving demand for NVDA chips. By applying its GPUs in AI models, Nvidia is expanding its base in untapped markets like automotive, healthcare, and manufacturing.

Just this past week, Nvidia passed by both Alphabet and Amazon in market capitalization. The chip giant became the 3rd most valuable company in the United States:

Image Source: YCharts

Nvidia’s revenues (on a trailing twelve-month basis) of $45 billion pale in comparison to Alphabet ($307 billion) and Amazon ($575 billion), so we can see the astronomically high expectations that investors have for Nvidia moving forward.

Image Source: YCharts

Nvidia also recently disclosed investments in its first-ever 13F filing with the SEC, providing investors with a glimpse of its long-term growth plan. Perhaps the most notable investment that Nvidia disclosed was a nearly $150 million stake in British chip designer Arm Holdings (ARM - Free Report) . The company also disclosed stakes in SoundHound AI (SOUN - Free Report) , a developer of AI software that is tailored to vocal recognition, and Nano-X Imaging (NNOX - Free Report) , which develops artificial intelligence applications used in medical imaging.

NVDA Stock Performance

NVDA stock is currently a Zacks Rank #2 (Buy). Shares exploded nearly 240% last year and have already added another 38% this year. The stock continues to trade above the widely-followed 50-day and 200-day moving averages, but has pulled back a bit heading into the earnings announcement. 

Image Source: StockCharts

As earnings and revenues have soared over the past few quarters, the stock has become overvalued based on traditional metrics. With this latest rally, Nvidia now trades at more than 40 times current sales, which is the highest ever for a company of its size. We can see that this figure far exceeds the current price to sales ratio of both Alphabet (6x) and Amazon (3x).

Image Source: YCharts

It goes to show that investors are willing to pay a premium price for Nvidia shares, as the growth trend is expected to remain in place for the foreseeable future.

Fourth-Quarter Earnings Estimates

Nvidia is looking to resume what has been a long history of earnings beats. Analysts covering NVDA have revised their estimates for Q4 upward by 1.34% over the past 60 days. The Zacks Consensus Estimate now stands at $4.54/share, reflecting an astonishing potential growth rate of 416% relative to the year-ago period. Revenues are anticipated to grow 234% to $20.2 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

These are phenomenal growth rates for a company of this size, and it’s no wonder that Nvidia’s stock continues to reward investors with massive outperformance. The stock was the leading performer last year out of all S&P 500 constituents.

Nvidia torched earnings estimates in 2023, surpassing even the most optimistic projections. The semiconductor leader has delivered a trailing four-quarter average earnings surprise of 18.99%. After the company reported its latest (Q3) results, Nvidia CEO Jensen Huang stated, “The computer industry is going through two simultaneous transitions – accelerated computing and generative AI.”

Bottom Line

Technology tends to underperform in bear markets and outperform in bull markets. That’s undoubtedly been the case between the 2022 bear market and the current bull market. Strong earnings projections, technological outperformance, and a bullish AI theme all point to continued strength in semiconductors.

Still, stocks in this group appear extended in the short-term, so investors will be watching closely to see how they react to the upcoming announcement from Nvidia.

Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.

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