Artificial Intelligence (AI) Giants NVIDIA (NASDAQ: NVDA) The company plans to announce its financial results for the second quarter of fiscal year 2025 (ending July 28, 2024) after the market closes on Wednesday, August 28.
Nvidia’s upcoming earnings announcement is widely considered to be the most anticipated of this quarter’s earnings season, as the company is seen as a bellwether, or indicator, in the AI field and the market as a whole.
NVIDIA Dominating the fast-growing AI chip marketBetter-than-expected results, especially in the AI-driven data center business, could be far-reaching artificial intelligence The market is probably stronger than people think.
Nvidia’s stock price is also a barometer of the overall market strength. S&P 500 Index (back apple) and has risen sharply since the beginning of 2023, significantly driving the performance of the overall index.
My predictions are twofold: (1) NVIDIA will beat Wall Street earnings expectations, and (2) by at least 10%. Where the 10% comes from remains to be seen.
Nvidia’s second-quarter guidance and Wall Street expectations
|
metric |
Second Quarter Fiscal Year 2024 Results |
Nvidia’s second quarter fiscal 2025 guidance |
Nvidia Growth Projections |
Wall Street consensus estimates for Q2 FY2025 |
Wall Street Growth Predictions |
|---|---|---|---|---|---|
|
Revenue |
$13.51 billion |
$28 billion |
107% |
$28.68 billion |
112% |
|
Adjusted Earnings Per Share (EPS) |
$0.27* |
$0.622** |
130% |
$0.64 |
137% |
Data source: Nvidia and Yahoo! Finance. Q2 FY2025 ended July 28, 2024. *Reflects a 1-for-10 stock split in June 2024. **Reflects a 1-for-10 stock split. Author’s calculations based on metrics for which management has provided guidance.
Nvidia has an impressive track record of beating Wall Street profit estimates, so it seems likely it will achieve that on Wednesday.
How strong is its track record?
Will NVIDIA’s earnings surpass or underperform?
I looked at Nvidia’s quarterly financial results for the past four years, or 16 quarters, stretching back to the second quarter of fiscal year 2021, which ended in late July 2020. Here’s a summary:
|
period |
Period Description |
Earnings* Results Compared to Wall Street Consensus Estimates |
Size of profits that exceed expectations (average) |
The magnitude (range) of benefits that exceed expectations |
|---|---|---|---|---|
|
Recently reported 16 quarters |
The complete data set |
14/16 beats = 88% |
12% |
5% to 32% |
|
11 quarters from 6 quarters ago |
Dataset period before generative AI emerged as a major growth driver |
9/11 Beat = 82% |
8% |
5% to 14% |
|
Last 5 Quarter Report |
When generative AI became a major growth driver |
5/5 beats = 100% |
18% |
10% to 32% |
Data source: Nvidia. Author’s calculations. *Revenue in the form of adjusted earnings per share (EPS). AI = artificial intelligence.
Let’s focus on the fifth quarter, when generative AI (the technology behind Open AI’s ChatGPT and other chatbots) was a key growth driver, including stock price movement.
|
quarter |
End of period |
Size of expected profit upside/downside |
Stock price fluctuations the day after financial results are announced |
|---|---|---|---|
|
1st Quarter 2025 |
Late April 2024 |
10% |
9.3% |
|
4th Quarter 2024 |
Late January 2024 |
12% |
16.4% |
|
3rd Quarter 2024 |
Late October 2023 |
19% |
(2.5%) |
|
2nd Quarter 2024 |
Late July 2023 |
32% |
0.1% |
|
1st Quarter 2024 |
Late April 2023 |
18% |
24.4% |
Data sources: Nvidia earnings reports, Yahoo! Finance, YCharts.
Highlights:
-
Nvidia has beat Wall Street revenue expectations every quarter since generative AI became its primary growth driver.
-
NVIDIA’s revenue has, on average, outperformed expectations in the so-called generative AI era.
Prediction: NVIDIA will beat Wall Street earnings expectations by at least 10%
Last quarter, Nvidia beat market expectations by 10%. Over the past five quarters (generative AI era), the company’s revenue beats have declined across the board: 10% (latest), 12%, 19%, 32%, 18%. Therefore, I use the smallest revenue beat as my forecast. Due to data trends, I use the minimum instead of the average.
The big picture: NVIDIA stock may not be as expensive as it seems
Since generative AI came on the scene, Nvidia’s revenues have increased significantly (18% on average), and I expect this trend to continue.
The data in this article undermines claims such as “NVIDIA stock is overvalued because its forward price-to-earnings (P/E) ratio is X” (forward P/E is 46.2 as of August 26). Forward P/E uses estimates of earnings value (usually Wall Street estimates), and these estimates are likely significantly too low, inflating the forward P/E.
Should I invest $1,000 in Nvidia right now?
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Beth McKenna The Motley Fool invests in and recommends Apple and Nvidia. The Motley Fool Disclosure Policy.
Forecast: NVIDIA beats Wall Street profit expectations by more than 10% on Wednesday Originally published on The Motley Fool
