Nvidia's third-quarter earnings will be reported after the closing bell on Wednesday, and everyone will be focusing on its demand outlook for the end of the year and beyond.
Nvidia (NVDA) , which holds a commanding 90% share of the market for so-called artificial-intelligence accelerators – the chips and processors that power the massive data systems of hyperscalers such as Microsoft (MSFT) and Amazon (AMZN) – has added more than $2.2 trillion in market value so far this year.
The group has doubled its sales for each of the past five quarters and is on pace for a fiscal 2025 tally of around $126.4 billion. However, it is starting to see challenges to its near-term outlook tied to supply constraints and nascent competition from smaller rival Advanced Micro Devices (AMD) .
That won't stop the group from posting another staggering profit gain. Estimates suggest profit doubled over the three months ended in October to around $17.4 billion, or another surge in overall revenues.
But it could mean a more modest outlook heading into its fiscal fourth quarter and beyond, forcing investors to temper some of their near-term expectations for the world's most valuable stock.
"Investor focus remains on Nvidia's ability to continue to increase guidance well ahead of expectations," said Logan Purk, technology analyst at Edward Jones. "These guidance numbers provide data points for the potential for AI demand."
Nvidia, which is expected to post overall revenue 83% above the year-earlier third quarter to $31.16 billion, is likely to see that growth rate slow to around 66% over the three months ending in January.
Nvidia's Blackwell demand in focus
Much will depend on Nvidia's ability to overcome supply-chain snarls and some early design flaws in its newly released line of faster and more energy-efficient Blackwell processors. It also depends on whether it can deliver the "several billions" in sales that finance chief Colette Kress promised investors earlier this year.
Wall Street forecasts for Blackwell's fourth-quarter revenue range from around $5 billion to as high as $8 billion.
"Nvidia heads into earnings with elevated expectations," said Hightower's chief investment officer, Stephanie Link. "The stock is up 172% year to date and 5% over the past month, with anticipation of a beat-and-raise tempered by potential revenue deceleration as the market awaits the [next-generation] Blackwell product."
Related: Nvidia earnings on deck as AI kingpin tightens grip against rivals
"It’s important to weigh Nvidia’s long-term growth prospects against the elevated expectations baked into its current valuation," she added.
Analysts largely agree on the group's longer-term prospects, however, and have faith in its ability to overcome the supply constraints early next year and deliver on what CEO Jensen Huang has called the "insane" demand for Blackwell.
AI spending plans soar
Nvidia's biggest customers, including Meta Platforms (META) , Google-parent Alphabet (GOOGL) , Amazon and Microsoft, have already committed to spending around $200 billion on AI-related projects this year.
That tally is expected to rise to around $270 billion next year, a result of what Amazon CEO Andy Jassy called a "once-in-a-lifetime" opportunity in generative AI.
Total AI spending, which includes software, hardware and services, is likely to more than double to around $632 billion by 2028 from around $235 billion in 2023, according to IDC estimates.
That could leave Nvidia in what Morgan Stanley describes as a "transition quarter" over the three months ending in January. Blackwell delays and supply constraints temper near-term forecasts, "but long-term confidence remains strong for Blackwell-driven growth."
Related: Nvidia to reap billions in big tech AI spending
KeyBanc Capital Markets analyst John Vinh also notes that Nvidia's H20 chip, designed to meet U.S. export restrictions on high-tech exports to China, could face both domestic competition and a nascent challenge from AMD's new MI308 chip.
He also noted the recent swapping of power providers to its Blackwell server rack, with Infineon (IFNNY) reportedly replacing Monolithic Power (MPWR) as an added near-term supply headwind.
Volatility warning sounds for Nvidia's stock price
"We expect Nvidia to report strong [fiscal-third-quarter] results, which will solidly beat, driven by strong demand for Hopper, and guide F4Q modestly above consensus expectations," he said, adding that the "lack of more meaningful upside could pressure Nvidia near term."
As a result, options traders are bracing for big swings in Nvidia's stock price and see moves of around 9% in either direction when it reports after the close of trading.
Related: Analysts revise Nvidia stock price targets as supply players update outlook
With a market value of $3.6 trillion, that could mean lost or added value of around $320 billion in after-hours trading alone and significantly impact all three major benchmarks, each of which houses Nvidia stock, when trading starts up again on Thursday.
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Wedbush analyst Dan Ives, a longtime Nvidia bull, isn't worried.
"We believe another $2 billion beat and $2 billion quarter guide higher is the recipe for success that [Wall Street] wants to see from Jensen & Co.," he said.
Ives expects Nvidia to beat the third-quarter revenue forecast by $2 billion and guide investors to a fourth-quarter tally $2 billion higher than the current $37.1 billion forecast.
"As use cases ramp across the enterprise world as seen by Palantir (PLTR) and others, Nvidia is the foundation of this AI-spending wave and we expect another jaw dropper tomorrow from [Huang] that will put jet fuel in this bull-market engine," he added.
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