Happy Nvidia day

The markets were calm yesterday, the European stocks extended gains, while the S&P500 and Nasdaq consolidated a bit lower than their ATH levels. A $69bn sale of US 2-year debt went well, the US 2-year yield extended losses and the US dollar rebounded from the lowest levels of the year. Crude oil, which rallied to its 200-DMA on mounting tensions in Middle East and Libya, failed to break offers at this level and fell nearly 2% as most traders brought the global growth concerns and the sluggish Chinese recovery back on the table. The barrel of US crude eased to $76pb level and is consolidating near this level this morning. We will probably have another calm trading session today, as investors will not be willing to move mountains before they see the latest results from Nvidia, that are due to be released today, after the closing bell.

Happy Nvidia day

Today is probably the most important day of the week, and of the earnings season, because it’s Nvidia’s earnings announcement day! Nvidia has a weight of around 6% in the S&P500 and it accounted for a third if its gains of the index this year. So the company’s earnings announcement day is naturally a big day for the market.

The expectations for Nvidia’s Q2 results are sky-high, of course. In numbers, Nvidia’s own revenue forecast is a whopping $28bn of sales in the Q2 of this year. That’s more than the double of the money the company made a year ago And the market expectations are even more than that: they range between $27 and $32bn. The LSE Group data for example suggests that sales at Nvidia’s sales may have grown by 75% in the Q2 to $31.69bn on persistently high spending from the Big Tech companies – that make up to 40% of the Nvidia’s revenue. The strong TSM earnings reported earlier in this earnings season also hints that we could see another blowout quarter from Nvidia. And given that the company has consistently printed a $2bn beat on its own forecast for the last four quarters, there is reason to think that the $30bn of sales is definitely within reach.  

But there are risks, too. First, higher expectations are harder to beat, and a number below the $30bn mark could disappoint more than one. Second, Nvidia had to delay the launch of its next generation Blackwell chip due to issues in design and manufacturing, and even though the company has enough popular chips to sell, the delay of the Blackwell chips could alter their own predictions for the quarters ahead and discourage investors. Third, Nvidia faces rising competition from the likes of AMD, Qualcomm and Intel. and the rising competition will start eating into the profit margins sooner rather than later. And finally, we can’t ignore the mounting worries regarding the Big Tech companies’ massive AI spending that has not improved these companies’ profitability just yet. Except at Meta, where Zuckerberg managed to convince investors that AI is having a positive impact on the ad revenue, other companies’ investors are frustrated regarding the return on AI investments, both regarding the timing and the size of the benefits on profitability. Even though Big Tech companies have enough cash on hand to increase their capex spending on AI—and they insist they would rather overspend than risk jeopardizing their dominance—if investors start pulling out, they may be forced to scale back their spending plans, which poses a risk for AI enablers like Nvidia.

Anyway, after the year and a half that we spent, and based on the data and numbers available to us today, it’s very hard to give a bad call for Nvidia. But everything from numbers to the guidance should look fantastic to send the stock’s price to new records. And bad news arrives when you least expect it; if there is a correction, it could be a sizeable one. We expect decent post-earnings volatility. Based on options pricing, the stock could move around 10% up and down after the results.