Nvidia’s second-quarter earnings could spark an AI surge or trigger panic selling

It has been called “the biggest tech gain in years.” Whether or not famous tech bull Dan Ives’ claim was hyperbole, there is no doubt, as he put it, that “the flowers (are) getting ready.” Wall Street is expecting another breakout quarter from the world’s top chip stock, and Wednesday’s results have the potential to spur a sector-wide rally or, if the company is short, send shares lower.

Nvidia’s earnings are a referendum on both AI investing and the semiconductor industry, several industry analysts said. wealthbecause of the company’s dominant position producing advanced graphics processing units, or GPUs, at the heart of the AI ​​boom. Nvidia’s meteoric rise will inevitably slow, they added (year-over-year growth of over 250% isn’t sustainable forever!) Risks range from competitive to macroeconomic to geopolitical in the coming years, but the good times should last the a little for now.

“The bottom line is they’re shipping to customers, primarily Microsoft, (Amazon Web Services) and Meta, as much as they can produce,” said Ted Mortonson, managing director and sector strategist of the technology office at Baird. “They’re going to have another incredible quarter.”

The Gen AI wave has made Nvidia one of the most powerful companies in the world. Revenue rose 262% to more than $26 billion last quarter, beating expectations by more than $1 billion, compared to just over $7 billion a year earlier. The company is now the second largest company in the US by market capitalization, which grew by nearly $2 trillion last year to nearly $3.1 trillion.

This has allowed investors to make massive gains. The stock is up more than 166% year to date, trading above the $128 mark at Tuesday’s close. Investors who have held the stock over the past five years have seen the stock gain about 3,000%, nearly doubling their investment year over year.

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The company’s broader impact on the overall market has also been astounding. As Big Tech dragged the S&P 500 to record highs in the first half of the year, Nvidia accounted for nearly 30% of the index’s total return during that period.

From an earnings perspective, however, Nvidia will inevitably soon become a victim of its own success. Even Wall Street’s darling AI will run into the law of large numbers.

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“These comparisons are biblical,” Mortonson said. “We’ve never seen a company over the last year exceed expectations to this degree, and it’s not Nvidia’s fault. They just face brutally harsh comparisons.”

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That deceleration, however, is already partially baked into the stock price, according to Angelo Zino, senior vice president and technology equity analyst at CFRA Research.

“When you look at the valuation of this company,” he said, “it’s trading at a big discount to where it’s actually trading.”

On its last earnings call, Nvidia forecast revenue of $28 billion, still well over double last year’s number, with the Street expecting the chipmaker to beat its own guidance by more than $800 million.

Whether or not the company meets these estimates will be seen by many as a barometer for the state of AI investment and the semiconductor industry as a whole. Given the dominance of Nvidia’s H100 GPUs, which are eventually to be replaced by the next generation of the Blackwell line, they are basically a proxy for demand, Zino noted, across the AI ​​spectrum.

“Nvidia is kind of perceived as the center of the universe when it comes to this AI business,” he said.

Fortunately for chipmakers, tech giants feel compelled to spend on AI like “drunken sailors,” as Mortonson put it, a phenomenon he and Zino don’t see slowing much in the coming year. With Nvidia receiving more orders than it can fill, semiconductor companies like Micron, Marvell and Broadcom will also benefit.

“The big takeaway is that what’s good for Nvidia is usually good for a lot of the other chipmakers that sell into the data center space,” Zino said.

As if investors didn’t already have enough reason to tune in.

This story was originally featured on Fortune.com