Author: Long Yue, Wall Street News
The "Nvidia time" that the market has been looking forward to is about to arrive.
After the U.S. stock market closed on Wednesday, Eastern Time, the company known as the "world's most important stock" will release its second quarter financial report for fiscal year 2025, followed by a financial report conference call. Nvidia's report card is not only related to itself, but also to the global technology and even financial industry chain.
Nvidia, which has been "leading the pack" in the AI craze, has high hopes from the market. The market optimistically expects Nvidia's revenue to double year-on-year this quarter, and expects the company's stock price to hit a new high. Of course, there are also constant doubts such as "AI has been overhyped" and "Nvidia's valuation is inflated."
Whether Nvidia can catch up with the market's optimism and renew the "AI faith" is the key. Morgan Stanley said that if Nvidia's revenue exceeds expectations, it may drive AI-related stocks up 3-15%, otherwise it will cause AI stocks to collapse. Bank of America believes that if Nvidia's performance is disappointing, there may be a 10% fluctuation, or about $300 billion in fluctuations.
In addition to performance, the production schedule of Nvidia's next-generation AI chip Blackwell has also become a focus of attention.
Zerohedge reported that generally speaking, Nvidia's financial data is usually released around 4:20 p.m. Eastern Time (4:20 a.m. Beijing Time on Thursday), followed by a conference call at 5 p.m. Eastern Time (5:00 a.m. Beijing Time on Thursday).
1. Can revenue double? The market generally expects it to be optimistic
Nvidia has surged more than 170% so far this year, with its market value remaining at just over $3 trillion, while the average S&P 500 component is only $99 billion. However, Koyfin data shows that the stock seems to have stagnated somewhat after hitting a peak of around $135 in June.
Will the latest financial report make Nvidia's stock price rise again? The market generally expects that Nvidia's Q2 revenue will double year-on-year, that is, revenue will increase by about 112% year-on-year to US$28.68 billion.
Goldman Sachs supports Nvidia and gives a revenue forecast that is higher than market expectations. The agency expects the company's Q2 revenue to reach $29.769 billion and earnings per share to reach $0.68, which are 4.1% and 5.9% higher than market expectations, respectively. Goldman Sachs believes that the Q2 financial report will show that demand for Nvidia's H100 GPU will remain strong, and H200 will begin to be shipped in batches. Goldman Sachs said:
Nvidia's earnings have room to rise, with earnings per share (GIR) expected to be $4.16 in fiscal 2025; and strong demand trends continue, with cloud computing service providers (CSPs) and enterprise demand remaining strong, which may support Nvidia's performance.
The performance rhythm of the past few quarters is that revenue has been about $1.5 billion higher than expected each quarter (based on the July quarter revenue expectation of about $28.8 billion), and revenue is expected to increase by about $2 billion quarter-on-quarter next quarter.
JPMorgan Chase expects Nvidia's Q2 revenue to reach $29.85 billion, which is also higher than the market consensus ($28.6 billion), with a guidance range of $27.44 billion to $28.56 billion:
Q2 expectations
Revenue: $29.85 billion, guidance range of $27.44-28.56 billion, market consensus value of $28.6 billion;
Data center revenue: $25.52 billion (up from $22.6 billion in the previous quarter);
Gross profit margin was 76.2% (guidance range was 75%-76%);
Earnings per share (EPS) were $0.69, while the market consensus was $0.64.
Performance Guidance
Q3 revenue was $32.95 billion, and the market consensus was $31.41 billion.
Revenues for fiscal 2025 and 2026 are projected at $125.7 billion and $186.6 billion, respectively, with consensus estimates of $120.3 billion and $166.18 billion.
Figure: Current market expectations for Nvidia's performance
Morgan Stanley also expressed optimism about Nvidia's performance in its research report on August 25, "We expect this to be a strong quarter, likely to exceed higher expectations."
Morgan Stanley pointed out that if Nvidia's revenue exceeds expectations, the prices of AI-related stocks may have a 3-15% upside. On the contrary, if it falls short of expectations, the entire AI stock group may have a 5-10% downside, and the priority of stock selection may be reversed.
However, Morgan Stanley recommends "not giving up on AI-related stocks" even if the third-quarter earnings report is disappointing. It believes that although the valuation of AI stocks has been readjusted, it is still far from the bubble level, and it is normal for the stock price to have some corrections during the price discovery stage.
Interestingly, the cryptocurrency community has quietly voted for Nvidia. Analysts pointed out that judging from the recent performance of AI tokens, the cryptocurrency community seems to have voted for Nvidia's financial report. AI crypto tokens have soared in the past week, significantly outperforming the overall cryptocurrency market.
2. Nvidia may see a $300 billion fluctuation? Bank of America reminds: Don’t underestimate the risk
Bank of America analyst Gonzalo Asis warned in a recent report that the market "may underestimate the risk of disappointing Nvidia's earnings performance" and that the financial results could bring unexpected volatility to the market.
The options market has already "predetermined" high volatility in Nvidia's stock price after its earnings report. The implied stock price volatility of Nvidia's options is 10% (about $300 billion based on a $3 trillion market value). Since 2018, the stock has never fallen more than 8% on the day of its earnings report. The Bank of America report mentioned:
Nvidia options imply a 10% volatility, meaning the stock could move 10% in either direction, and the stock has never fallen more than 8% on a reporting day since 2018.
The Volatility Index (VIX) was 65 on August 5, highlighting the return of fragility in the broader market, while the S&P 500 tends to remain fragile after such a large shock, and any adverse results from Nvidia's earnings report could exacerbate market instability.
3. Blackwell, the next-generation AI chip, raises concerns about its timetable
Morgan Stanley believes that whether Nvidia's Q3 revenue guidance meets market expectations may have little impact on the stock. What really affects the stock is whether the company can alleviate investors' concerns about Blackwell delays that may be caused by chip design readjustments.
Nvidia CEO Jensen Huang said in May that the chip would ship in the second quarter of this year. Earlier this month, The Information reported that the company was facing production problems that could delay large-scale shipments until the first quarter of 2025. Analysts pointed out that design obstacles could delay shipments.
Morgan Stanley said that the possibility of such a delay cannot be ruled out, but through investigations into the supply chain and observations of strong purchasing demand and increased capital expenditures by cloud computing companies, Morgan Stanley concluded that the current condition of the artificial intelligence chip market is very good.
Some analysts say Nvidia could offset much of the impact of the Blackwell chip delay by replacing Blackwell chip orders with the previous generation Hopper chip. "We expect Nvidia to reduce its emphasis on Blackwell B100/B200 GPUs in the second half of the year and increase its emphasis on Hopper H200," HSBC analyst Frank Lee wrote in an August report.
JPMorgan Chase believes that Nvidia's GB200 capacity expansion may slow down in the second half of 2024, but is expected to expand significantly in 2025. Despite initial production challenges, Blackwell-related GPU shipments are expected to reach more than 4.5 million units in 2025.
4. What else is worth paying attention to?
"This is the most important stock in the world right now," EMJ Capital analyst Eric Jackson told the media. "If they fail, it will cause major problems for the entire market. I think their stock price will surprise to the upside."
Several analysts believe that Nvidia's financial report is a referendum on artificial intelligence investment and the semiconductor industry.
They say Nvidia's breakneck growth will inevitably slow down, with risks ranging from peer competition to macroeconomics to geopolitics set to surface in the coming years. But they still think the good times will last, at least for now.
Meanwhile, September is considered the weakest month for stocks seasonally, with the S&P 500 rising only 44% of the time during this period, with an average return of -1.20%. Bank of America pointed out that September and October returns in presidential election years are also poor, with average returns of -0.46% and -0.34%, respectively.
