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While the Q2 earnings season is past its peak, markets are still eagerly awaiting the quarterly report of Nvidia (NVDA), which is set to release its fiscal Q2 2024 earnings this Wednesday, Aug. 23 after the close.
There's an incredible amount of euphoria around Nvidia's upcoming earnings – and it is not without a reason. Much of the U.S. stock rally in 2023 has been driven by optimism over artificial intelligence (AI), and Nvidia is among the companies which are immediate beneficiaries of increased AI spending - and is, in some ways, a bellwether of the industry.
NVDA Stock Soared After Fiscal Q1 Earnings
Nvidia released its fiscal Q1 earnings in May, after which the stock soared - and soon enough, joined the exclusive ranks of $1 trillion companies. That quarter, Nvidia's revenues of $7.19 billion easily exceeded the $6.52 billion analysts were expecting.
Even more impressive, Nvidia's revenue guidance of $11 billion for the fiscal second quarter was over 50% higher than what analysts expected. While a better-than-expected forecast itself is not so remarkable, a number that far beyond estimates is quite unusual – especially for mega-cap and well-covered companies like Nvidia.
Nvidia stock is heading into its fiscal Q2 earnings as the best-performing S&P 500 stock ($SPX) of the year by a wide margin, having gained 221% in 2023. Now, markets will watch NVDA’s latest earnings to gauge whether the AI-led boom continues to lift its revenues and profits.
Nvidia Q2 Earnings Estimates
Analysts now expect Nvidia to post revenues of $11.07 billion in fiscal Q2 – slightly ahead of the company’s guidance. These analysts are also forecasting a 428% rise in the company’s earnings for the quarter.
Wall Street is getting even more optimistic about Nvidia’s earnings potential amid the AI boom. Yesterday, HSBC raised Nvidia’s target price from $600 to $780, while upping its fiscal Q2 revenue forecast to $12 billion - around 9% higher than consensus estimates.
Wall Street Gets Even More Bullish on Nvidia’s Earnings
Analysts expect the earnings boom for Nvidia to continue in the coming quarters. While consensus estimates call for fiscal Q3 revenue to rise 109% to $12.4 billion, estimates are as high as $14 billion. KeyBanc analyst John Vinh, who just raised his target price on Nvidia from $550 to $620, is among those who expect Nvidia to post better-than-expected fiscal Q2 earnings and provide guidance above consensus forecast.
As a group, analysts expect Nvidia’s revenues to rise 124% in fiscal Q4 to reach $13.54 billion. While Nvidia has guided revenues below consensus estimates only once in the last two years, it has a higher bar to reach now, considering the rampant optimism.
NVDA Stock Forecast
According to Reuters, at least 10 analysts have raised NVDA’s target price over the last week, as Wall Street gets increasingly more bullish on the chip giant ahead of its fiscal Q2 earnings.
Overall, analysts rate NVDA stock as a Strong Buy:
Of the 34 analysts that cover NVDA, 28 have a Strong Buy rating, while 3 each rate the stock as a Moderate Buy and Hold. The percentage of analysts that rate Nvidia’s stock as a Strong Buy has risen over the last month, and so has Nvidia’s target price, which is currently at $491.97 – implying expected upside of just under 5%.
That said, while analysts have been raising Nvidia’s target price frequently of late, these actions have tended to trail NVDA’s realized price action. The most recent update from HSBC implies expected upside of about 65% from current prices, and we could see more brokerages raise Nvidia’s target price after the earnings release.
Nvidia stock now trades at a next-12-month price-to-earnings multiple of 48.44x, which is not much higher than its three-year average of 47.1x. While the stock has more than tripled this year, its earnings estimates have also risen - which means the valuations still appear reasonable.
Should You Buy or Sell Nvidia Stock Ahead of Earnings?
Given the high expectations for Nvidia and the stock's pre-earnings rally – including an 8.5% gain yesterday – I would not necessarily bet on a post-earnings rally. However, given its exposure to multiple high-growth and emerging industries, like generative AI and autonomous driving – as well as the company’s strong track record of offering innovative products – I believe Nvidia should be part of the core portfolio of growth investors, with any weakness presenting a buying opportunity.
In addition, while we have a flurry of economic data and a speech by Fed Chair Jerome Powell this week, Nvidia’s earnings remain the key event to watch out for, as it could have repercussions on not only NVDA and other tech stocks, but also the wider markets. As Inge Heydorn, partner at GP Bullhound told Reuters, "I've been covering tech since 1994 and I have never seen an environment where you are so dependent on one company to deliver.”
A negative surprise from Nvidia would be the last thing that markets would want, as U.S. stocks are already looking weak in August amid rising Treasury yields and growing concerns over the Chinese economy.
On the date of publication, Mohit Oberoi had a position in: NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
