Nvidia pressure builds ahead of Q2 earnings

Lofty expectations of another beat-and-raise quarter by NVIDIA Corp (NASDAQ:NVDA) mean the semiconductor giant carries the weight of Wall Street when it delivers results tomorrow tonight.

Given the implications for the stock market’s AI growth wave, the build-up to the figures now resembles macroeconomic events such as a US jobs report or inflation release.

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Deutsche Bank notes the example of Nvidia’s results in February, which helped the S&P 500 index surge by 2.1% in the benchmark’s second-best daily performance of 2024.

Nvidia has another high bar to overcome with its figures for the three months to 31 July, having seen shares rebound by 25% since the stock market volatility at the start of August. 

As recently as October 2022, Nvidia was the 18th largest in the S&P 500 worth less than $300 billion. Its run to a valuation of $3 trillion, fuelled by its 80% share of the rapidly expanding market for AI chips, recently accounted for 35% of this year’s gains by the S&P 500.

The California-based company opened today’s session slightly lower and still 8% short of the all-time high set on 18 June. 

Analysts expect revenues for the second quarter to hit $28.7 billion (£21.7 billion), up 113% year-on-year. Underlying earnings are set to jump to  $18.9 billion (£14.3 billion) from $7.4 billion a year ago.

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Saxo’s chief investment strategist Peter Garnry said: “Given the underlying momentum in the AI industry and the results we have seen from other companies in the AI ecosystem, we lean in the direction of Nvidia beating consensus and lifting guidance for fiscal Q3.”

Demand continues to be driven by strong AI demand for Nvidia’s Hopper chips H100 and H200. Alongside revenue guidance, the market will be looking for an update of its Grace Blackwell 200 (GB200) chip, which was originally scheduled for launch in the final quarter of the year.

The recent upside for the stock has been fuelled by the potential of the new and more powerful Blackwell platform, which is expected to unlock generative AI for more organisations.

The new architecture features six technologies for accelerated computing in data processing, engineering simulation, electronic design automation, computer-aided drug design, quantum computing and generative AI — all emerging industry opportunities for Nvidia.

Google, Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), OpenAI, Oracle Corp (NYSE:ORCL) and Tesla Inc (NASDAQ:TSLA) are among those expected to adopt Blackwell.

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Saxo’s Garnry added: “Our view is that the AI wave will continue until the next GB200 investment has run its course as Google, Meta, and Microsoft will take another bet on compute power to see what it can create in terms of models and new AI applications.”

However, a weaker global economy has the potential to weigh on the pace of spending and fuel jitters about lofty valuations. Hedge fund Elliott added to pressure recently when it reportedly said that mega-cap technology stocks, particularly Nvidia, were in “bubbleland”. 

In a letter to clients seen by the Financial Times, it is quoted as saying that many of AI’s supposed uses are “never going to be cost-efficient, are never going to actually work right, will take up too much energy, or will prove to be untrustworthy”.

However, UBS Global Wealth Management said this week that the fundamentals for the broader AI growth story remain intact: “Without taking any single-name views, we maintain our positive outlook for quality AI beneficiaries in the semiconductor and software industries.”