Nvidia, the chip designer, is expected to announce quarterly revenue above estimates when it releases its results on Wednesday. Investors are eager to know by how much the revenue will exceed expectations. Nvidia has been a major beneficiary of the growing popularity of ChatGPT and other generative artificial intelligence (AI) applications, all of which rely on its graphics processors. The company’s shares have tripled in value this year, propelling its market valuation to over $1 trillion. Any disappointment in earnings could lead to a significant drop in the company’s stock. The results of Nvidia’s report are also expected to influence the wider market, as the majority of this year’s gains have come from the AI-driven rally in Nvidia and other Big Tech stocks.
Inge Heydorn, a partner at GP Bullhound, which owns shares in both Nvidia and AMD, expressed concern about the company’s influence on the market. Heydorn stated, “AI is really the last pillar of growth and everybody is depending on it. If Nvidia shows weakness, we could be in for quite a substantial correction in the market.” Analysts anticipate that Nvidia will guide for a 110% rise in third-quarter revenue to $12.5 billion. The company has only forecasted revenue below estimates once in the past two years. Last week, at least 10 brokerages raised their price targets on Nvidia’s stock, with the median view now at $500, representing a 15.5% increase from its previous close.
Although Nvidia’s 12-month forward price-to-earnings ratio had reached over 80 following its second-quarter revenue forecast in May, it has since decreased as analysts raise their earnings expectations. The company now trades at nearly 40 times the consensus earnings for the next 12 months, significantly higher than AMD’s ratio of 29 times. Investors will closely examine the sales performance of Nvidia’s data center unit, particularly its H100 chip used in AI, to assess whether the company’s valuation is justified. Analysts note that Nvidia is currently only able to meet half of the demand for its H100 chip, which is selling for double its original price of $20,000.