Can Nvidia Stock Score Another Earnings-Fueled Rally?

Nvidia (NVDA) stock moved higher in afternoon trading Tuesday as market participants anxiously awaited what some analysts have called the “most important tech earnings in years.”

Nvidia, the artificial intelligence chipmaker at the heart of the AI revolution, is scheduled to report fiscal 2025 second-quarter earnings after markets close on Wednesday. It will be the third earnings report from Nvidia this calendar year and investors are waiting to see if it will be the third time its stock soars to new heights on blowout results.

Shares jumped more than 9% on May 23, the day after the chipmaker reported record quarterly revenue and profit, and announced a 10-for-1 stock split. They went on to rise more than 27% in the following two weeks.

The company’s fiscal 2024 fourth-quarter results were even more explosive. Shares jumped 16% in one day, adding a record $272 billion to the company’s market cap. By the end of the week, Nvidia’s market value had increased by more than $300 billion, and within two weeks its shares had risen more than 30%. 

But stellar results aren’t always enough for Wall Street. Nvidia shares fell in late November 2023 when concerns about restrictions on the export of advanced semiconductors to China overshadowed quarterly revenue that exceeded Wall Street’s estimates by nearly $2 billion. 

Nvidia Stock Has Faced Recent Headwinds

The stock, which seemed unstoppable for much of the last two years, has stumbled in recent months. Shares fell more than 25% through July and early August as the anticipation of lower interest rates prompted a broad rotation out of mega-cap tech stocks into rate-sensitive small caps and then sparked the unwinding of the popular yen carry trade. 

Concern about excessive spending on AI infrastructure also weighed on tech stocks in this most recent earnings cycle. Nvidia’s stock, despite its position as a beneficiary of all that spending, has felt some of the pain of Wall Street’s frayed AI optimism.

The company has also recently had to contend with reports that its next-generation Blackwell chip may be delayed by design flaws. The news sent shares plummeting earlier this month, but investors bought the dip and the stock has since recovered.

High Expectations a Risk, Says Morgan Stanley

Morgan Stanley analysts in a note on Sunday said they believe Wall Street overreacted to Blackwell delays. They did not expect the delays to change the system’s rollout timeline, nor did they expect it to have a material impact on quarterly results.

With demand for the Blackwell system strong and older offerings filling in supply gaps, executives, the analysts said, may “not even acknowledge tactical setbacks.”

The greatest risk to Nvidia stock, in their opinion, is climbing investor expectations. Results from hyperscalers and AI server maker Super Micro Computer (SMCI) point to massive data center spending, leading some to raise their estimates for sales throughout the rest of the year.

Morgan Stanley believes that, to satisfy investors, Nvidia will have to announce revenue guidance for the fiscal third quarter that’s about $2 billion higher than the consensus view among analysts. “(A)ssuming that all is well with new products our sense is that the stock needs guidance in the $33-34 (billion) range to be unchanged.”

A figure in that range would imply a significant acceleration of quarter-to-quarter sales growth.

Analysts expect Nvidia will report fiscal second-quarter revenue of $28.84 billion, according to consensus estimates compiled by Visible Alpha, which would be about 11% higher than the first quarter. If Nvidia meets those expectations, it would have to grow revenue 18% over the quarter to hit the high end of the range.