Nvidia is the world’s “most important stock” and is increasing pressure on Q2 earnings

For NVIDIA The last two years have been an actual joyride for investors. But recently it has been more of a rollercoaster ride.

As a serious beneficiary of the substitute intelligence boom, Nvidia has seen its market capitalization increase by about ninefold for the reason that end of 2022. But after hitting a record high in June and briefly becoming the world’s most useful publicly traded company, Nvidia lost nearly 30% of its value over the following seven weeks, wiping out about $800 billion in market capitalization.

Now it’s within the midst of a rally that has pushed the stock all the way down to about 7% of its all-time high.

With the chipmaker set to report quarterly earnings on Wednesday, stock volatility is the essential topic on Wall Street. Any indication that demand for AI is slowing or that a number one cloud customer is tightening its belt a bit could lead on to significant revenue losses.

“It’s the most important stock in the world right now,” EMJ Capital’s Eric Jackson said on CNBC’s “Closing Bell” last week. “If they miss, that would be a big problem for the entire market. I think they’ll surprise on the upside.”

Nvidia’s report comes weeks after its megacap tech rivals announced their earnings. The company’s name has been mentioned repeatedly on those analyst calls, Microsoft, alphabet, Meta, Amazon And Tesla all spend quite a lot of money on Nvidia graphics processing units (GPUs) to coach AI models and run huge workloads.

Over the past three quarters, Nvidia’s revenue has greater than tripled year-over-year, with many of the growth coming from its data center business.

Analysts expect a fourth consecutive quarter of triple-digit growth, in line with LSEG, but at a slower pace of 112% to $28.7 billion. From here, year-on-year comparisons grow to be way more difficult, and growth is more likely to slow in each of the following six quarters.

Investors might be paying particular attention to Nvidia’s guidance for the October quarter. The company is predicted to indicate growth of about 75% to $31.7 billion. An optimistic forecast suggests that Nvidia’s deep-pocketed customers remain willing to open their wallets for AI expansion, while a disappointing forecast could raise concerns that infrastructure spending is overstretched.

“Given the steep increase in capital spending for hyperscale companies over the past 18 months and the strong near-term outlook, investors often question the sustainability of current capital spending trends,” Goldman Sachs analysts, who recommend buying the stock, wrote in a note last month.

The optimism underlying the report – the stock rose 8 percent in August – is due largely to comments from key customers about how much they proceed to shell out for data centers and Nvidia-based infrastructure.

Last month, the CEOs of Google and Meta praised the pace of their expansion, saying underinvestment was a much bigger risk than overspending. Former Google CEO Eric Schmidt recently told students at Stanford in a later-removed video that he had heard from leading technology corporations that they needed $20 billion, $50 billion or $100 billion value of processors.

But while Nvidia’s profit margins have increased recently, the corporate still faces doubts about whether customers can look ahead to investing in devices that cost tens of hundreds of dollars and are ordered in large quantities in the long run.

During Nvidia’s last quarterly earnings call in May, CFO Colette Kress presented data suggesting that cloud providers, which account for greater than 40% of Nvidia’s revenue, would generate $5 in revenue for each dollar spent on Nvidia chips over 4 years.

More such statistics are more likely to follow. Last month, Goldman analysts wrote after a gathering with Kress that the corporate would release more ROI metrics this quarter “to build investor confidence.”

The other big query facing Nvidia is the timeline for its next-generation AI chips, called Blackwell. The information reported Earlier this month, Nvidia announced that the corporate was facing production issues that will likely delay major shipments into the primary quarter of 2025. Nvidia said on the time that production was expected to ramp up within the second half of the yr.

The report got here after Nvidia CEO Jensen Huang surprised investors and analysts in May by saying the corporate would generate “a lot” of Blackwell revenue this fiscal yr.

While Nvidia’s current chip generation, called Hopper, continues to be the premium option for using AI applications akin to ChatGPT, competition is emerging from Advanced micro devicesGoogle and a handful of startups which can be putting pressure on Nvidia to take care of its performance lead through a smooth upgrade cycle.

Even with a possible delay at Blackwell, that revenue could easily be pushed to a later quarter while still boosting current Hopper sales, especially of the newer H200 chip. The first Hopper chips were in full production in September 2022.

“This timing shift is not a major factor as supply and customer demand have shifted rapidly to H200,” Morgan Stanley analysts wrote in a note this week.

Many of Nvidia’s leading customers say they need the additional processing power of the Blackwell chips to coach more advanced next-generation AI models, but they’ll take what they will get.

“We expect Nvidia to place less emphasis on Blackwell B100/B200 GPU allocation in the second half of the year and instead expand its Hopper H200 models,” HSBC analyst Frank Lee wrote in a note in August. He recommends buying the stock.

Correction: Colette Kress is CFO of Nvidia. An earlier version misspelled her name.