Nvidia stories second-quarter earnings on that date.
It has been one more thrilling earnings season for buyers as megacap tech corporations proved that the synthetic intelligence (AI) practice is transferring full steam forward.
One AI participant specifically is but to publish monetary outcomes for the second quarter. On Aug. 28, semiconductor specialist Nvidia (NVDA 0.98%) will report earnings, and you’ll guess that bulls and bears all throughout Wall Road might be specializing in each final quantity the corporate produces.
Let’s dive into what buyers ought to search for and assess if now is an effective time to purchase shares of Nvidia.
What’s Wall Road forecasting for Nvidia earnings?
Nvidia stories income in 5 classes: knowledge facilities, gaming, skilled visualization, automotive, and unique tools manufacturing (OEM).
Every phase is related to AI in some type or trend, however the overwhelming majority of Nvidia’s enterprise stems from knowledge facilities. In the course of the firm’s first quarter of fiscal 2025 (ended April 28), whole income was $26 billion. Practically 87% of that, or $22.7 billion, got here from the information middle enterprise.
In accordance with consensus analyst estimates, Wall Road is forecasting that second-quarter gross sales might be round $28.5 billion. Ought to Nvidia obtain this goal, it might characterize 111% progress yr over yr.
Within the part beneath, I am going to break down why I believe Nvidia would possibly blow away these estimates and clarify a few of that tailwinds that might be lifting its necessary knowledge middle operation.
Picture supply: Getty Photographs.
A very good proxy for Nvidia
It is apparent {that a} widespread thread stitching the general material of megacap tech proper now’s AI. However at a extra granular stage, AI’s integration with cloud computing is a giant motion throughout the expertise trade at giant.
The cloud computing panorama is dominated by Amazon, Microsoft, and Alphabet.
In the course of the second quarter, every of those “Magnificent Seven” members revealed some attention-grabbing options. Specifically, every is aggressively rising investments in capital expenditures (capex).
AMZN capital expenditures (quarterly); knowledge by YCharts.
Within the case of Amazon, the corporate’s large initiative is an $11 billion funding into knowledge facilities in Indiana as a part of a broader rollout to develop its personal AI-powered chips. As for Microsoft, the corporate hasn’t been shy about new investments in nuclear-powered knowledge facilities as the corporate seeks to double down on AI infrastructure in an power environment friendly method.
Throughout Alphabet’s second-quarter earnings name, chief monetary officer Ruth Porat mentioned that capex spending was “pushed overwhelmingly by funding in our technical infrastructure with the most important part for servers adopted by knowledge facilities.”
Do you see the theme? All of Nvidia’s cohorts are investing tens of billions of {dollars} into knowledge middle infrastructure, and the traits within the chart above recommend it will not be slowing down anytime quickly.
Contemplating the bulk of Nvidia’s income and earnings comes from knowledge middle companies and the corporate’s refined graphics processing items (GPU), I see the rising capex patterns from others in large tech as a great proxy for what’s to come back for Nvidia.
Do you have to purchase Nvidia inventory earlier than Aug. 28?
AI emerged as the most popular ticket within the tech realm towards the top of 2022 when OpenAI launched ChatGPT.
Within the chart beneath, you possibly can see how Nvidia inventory reacted following a collection of earnings stories because the starting of final yr. The earnings report dates are annotated by the purple circles with “E” within the center.
It is clear that Nvidia inventory has risen significantly during the last 20 months or so. Extra particularly, the inventory not often dropped instantly following an earnings report, and when it did, the sell-off was transient.
To me, this helps validate that purchasing Nvidia inventory both earlier than or after its final a number of earnings stories led to the identical end result: beneficial properties.
NVDA PE ratio; knowledge by YCharts.
In terms of valuation, Nvidia inventory is cheaper at this time than it was a yr in the past on each a price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) foundation. This compression in multiples has occurred as a result of the corporate’s earnings and money stream are literally rising sooner than its gross sales, an indication of an extremely wholesome and highly effective operation.
Given the traits from its Magnificent Seven friends famous above, I am cautiously optimistic that Nvidia might expertise one more spectacular quarter. For these causes, it is likely to be a good suggestion to purchase some shares now as a result of historical past suggests Nvidia inventory might be headed for additional beneficial properties.
However I would not get too caught up within the actual timing. In the event you desire to research the earnings report first after which determine to purchase the inventory, maybe you will be investing at a barely increased valuation. Given the traits within the earnings chart, I am assured that beneficial properties will nonetheless be on the horizon for long-term buyers whether or not or not they purchase Nvidia inventory earlier than Aug. 28.
John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an govt at Alphabet, is a member of The Motley Idiot’s board of administrators. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Idiot has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
