- NVIDIA forecast to report record quarterly revenue and adjusted EPS
- AI demand to take-off, with datacentre sales forecast to double from last year
- No concerns over AI demand, but performance will be dictated by supply
- Shift in mix to pricier AI chips boosting margins to record levels
- Gaming set to return to growth for first time in over a year
- There is a high bar ahead of the results, but Wall Street is extremely bullish and sees scope for a beat and/or upgrade to guidance
NVIDIA earnings date and time
NVIDIA is scheduled to release second quarter earnings after US markets close on Wednesday August 23. A webcast is scheduled on the same day at 1400 PT.
NVIDIA earnings consensus
NVIDIA is forecast to report a 65% year-on-year rise in second-quarter revenue to $11.04 billion and adjusted EPS is seen coming in at $2.07, more than quadruple the $0.51 reported the year before.
NVIDIA earnings preview
NVIDIA has been the best performer in the S&P 500 this year, with its valuation having trebled since the start of the year despite the pullback we have seen in the share price during August. That is because it is the only major company set to reap bumper financial rewards from the eruption of artificial intelligence in 2023, with businesses eagerly snapping-up its advanced chips.
NVIDIA is forecast to report revenue of $11 billion, which would mark a new quarterly record! That would be up 65% from the year before and, more significantly, mark a big jump from the $7.2 billion in sales we saw in the previous quarter to demonstrate the huge surge in AI-driven sales.
(Source: Company reports, with estimates from Bloomberg-compiled consensus)
The growth will mostly come from its division that sells chips used in datacentres, which are now being upgraded with more advanced chips so they can handle the influx of demand for AI, machine learning and large-language models. Revenue from datacentres is seen more than doubling compared to last year to $7.98 billion. That would also mark a huge jump from the record $4.28 billion reported just three months ago.
The bumper demand for AI is also helping earnings grow at an even faster rate than the blistering pace we are seeing at the topline. Adjusted operating expenses are forecast to be up over 9% in the second quarter from the year before and R&D expenses are estimated to be up about 12% as it invests in its datacentre arm, but this is being more than covered by the explosion in revenue. Plus, the shift in sales mix toward more advanced, pricier chips is also boosting profitability. In fact, NVIDIA is expected to report an adjusted gross margin of 70% in the second quarter, which would be a new all-time high for the company.
Outside of AI, its results will also benefit from its arm that sells chips used in games consoles returning to growth, with revenue forecast to climb 16.5% from last year to $2.38 billion. That would be the first rise in over a year as it finally starts to come up against easier comparatives following a lengthy period when demand for games consoles unravelled after consumers upgraded their hardware whilst stuck at home during the pandemic.
Wall Street is even more bullish than the markets. The average target price among the 51 brokers that cover the chipmaker has soared to $515 today from less than $300 just three months ago – and some have set their targets as high as $800! NVIDIA currently trades at around $454.
NVIDIA trades at a well-earned premium over its rivals thanks to its lead in AI and there is no doubt that several years of future growth have already been priced-in, with NVIDIA trading at over 55x forward earnings. That is all the more significant considering NVIDIA is already on course to deliver record results in 2023, with markets currently anticipating a 61% jump in annual sales and for earnings to rise 2.4-fold! But Wall Street, generally speaking, is extremely bullish ahead of the results and see scope for NVIDIA to deliver a beat and potentially upgrade its outlook for the rest of the year once again.
(Source: Company reports, with estimates from Bloomberg-compiled consensus)
Upgraded estimates, plus its huge valuation premium over its rivals, suggests the bar is high ahead of the results but markets are confident it can clear it. It does, however, suggest meeting expectations may not be enough to impress and that it wouldn’t take a lot to disappoint.
With that in mind, the outlook for the third quarter will be highly influential on how markets react. Wall Street is looking for NVIDIA to target revenue of $12.4 billion, which would be more than double what we saw last year.
There is widespread agreement that demand is not an issue, but the biggest factor that will decide just how well NVIDIA does this year is how quickly it can ramp-up supplies. Some have suggested demand is running up to 50% ahead of supply. That should provide NVIDIA a healthy and lengthy backlog to work through, but investors will want to know how agile it is in meeting rising demand whilst it has a lead over rivals. It currently has a monopoly and needs to take advantage as much as possible, given it is highly likely that rivals will eventually catch up considering the size of the opportunity is too big for one company to dominate.
“Our entire data center family of products — H100, Grace CPU, Grace Hopper Superchip, NVLink, Quantum 400 InfiniBand and BlueField-3 DPU — is in production. We are significantly increasing our supply to meet surging demand for them,” said CEO Jensen Huang back in May.
Where next for NVDA stock?
NVIDIA shares have been undergoing a correction since peaking at all-time highs in July, having set a series of lower-highs and lower-lows over the past month.
Notably, the jump we have seen in the share price today (driven by more price target upgrades) has the potential to snap this correction as it would set a higher-low. The upside test is to move back above the last high$445.60 before trying to clear the previous ones at $454, $467.50 and then the all-time high of $475 is back in view.
The downtrend that has been in play over the past month is still intact ahead of the results. The key downside level to watch is the range of $406 to $401, which has reliably drawn buyers back into the market over the past two months. A slip below here could be more significant.
It is worth noting the potential for much larger moves. NVIDIA shares popped over 24% when it released its last set of results, showing there is scope for a sharper movement in either direction that could blow all these levels out in a very short space of time.
Nasdaq 100 analysis: Where next?
NVIDIA is the fourth largest member of the Nasdaq 100, carrying a weighting of 4.3%. As one of the largest members and the number one bellwether for AI, its results are likely to be highly influential over tech stocks, so traders should keep an eye on the index.
The Nasdaq 100 has been experiencing a correction in the three weeks since hitting 19-month highs in July, having lost ground for three consecutive weeks. This is the sharpest pullback we have seen in 2023 so far, which is triggering fears that this is a reversal. However, the 6% drop we have seen is mild when we remember that the index is still up over 36% year-to-date, suggesting this is a healthy retracement that may have been long overdue.
The rebound we have seen at the start of this week is welcome and suggests that buyers are willing to return when it slips below 14,700, although we could see it slip to as low as 14,500. This is the immediate downside range to watch to see if it keeps bringing buyers back in.
The immediate upside target is 15,200, which proved to be a tough level to crack throughout the second-half of June and the first-half of July, as well as marking the most recent peak. It also aligns with the peak we saw in March 2022.
Take advantage of extended hours trading
NVIDIA will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.
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