Prediction: You’ll Probably Wish You’d Bought Nvidia Stock Hand Over Punch Before August 28

Although Nvidia (NVDA 1.67%) has been one of the hottest stocks in the market in 2024, with a whopping 118% gains at the time of writing, recent share price action suggests that investor confidence in the stock has become a bit shaky.

After all, Nvidia shares have retreated more than 20% since hitting a 52-week high on June 20. report, doubts about Nvidia’s ability to sustain its remarkable growth, and concern over whether artificial intelligence (AI) could actually prove to be a major catalyst for tech giants pouring huge sums of money into the technology.

However, a closer look at the monthly sales figures of one of Nvidia’s main manufacturing partners tells us that the graphics card specialist may soon regain the confidence of investors and start growing again.

Nvidia’s foundry partner saw a big increase in revenue last month

Taiwan Semiconductor Manufacturing (TSM -1.38%)popularly known as TSMC, is a semiconductor foundry that produces chips for fabless chip makers like Nvidia. A no-nonsense chipmaker designs and sells semiconductors, while actual manufacturing is done by foundries like TSMC.

Nvidia is one of TSMC’s key customers, accounting for 11% of its revenue in 2023. TSMC has partnered with Nvidia to help it produce more AI chips and reduce long lead times. More specifically, TSMC plans to increase its advanced chip packaging capacity at an annual rate of 60% through 2026 to meet the robust demand for high-performance chips needed in AI data centers.

TSMC’s revenue in July rose 45% from a year ago to nearly 257 billion New Taiwan dollars (or $7.9 billion in US dollar terms). TSMC’s monthly revenue grew at a much faster pace than consensus expectations for a 37% rise in Q3 revenue, suggesting it could be on track to deliver better-than-expected results next time around.

But at the same time, TSMC’s rising revenue growth over the past three months is also an indicator of potentially strong action from Nvidia when it releases its fiscal 2Q25 results (for the three months ended July 28 ) on August 28. TSMC’s revenue rose 30% in May, followed by a 33% increase in June and an even better performance last month.

Analysts expect Nvidia to post $28.5 billion in revenue for the fiscal second quarter. That would be a 111% increase over the same period last year. For comparison, Nvidia’s revenue in its fiscal first quarter, which ended in April, rose 262% year over year to $26 billion. TSMC’s Q1 2023 revenue rose 13% year-over-year, followed by a 33% year-over-year increase in Q2.

And as TSMC’s revenue growth has continued to accelerate, there’s a good chance Nvidia could source more chips from the foundry giant. This suggests that Nvidia may have been able to fulfill more orders from customers. The company pointed out in its May earnings conference call that demand for current-generation Hopper chips has increased, with the H200 AI chip seeing stronger demand than supply.

In addition, Nvidia says that its next-generation AI Blackwell chips will likely remain constrained until 2025. So, if TSMC does increase production of its chips and can increase production for customers like Nvidia, the possibility of It cannot be ruled out that Nvidia to deliver better-than-expected figures later this month.

Savvy investors would do well to buy Nvidia stock before it hits the gas.

The rating is too attractive to ignore

Nvidia’s recent pullback has made the stock more attractive than before. It now trades at 61 times trailing earnings. While that’s higher than the US tech sector’s average earnings multiple of 41, Nvidia is cheaper than its five-year average earnings multiple of 71.

Additionally, Nvidia’s forward earnings multiple is 40 points to a significant improvement in its bottom line and is in line with the US tech sector average. Analysts expect Nvidia’s earnings to double in the current fiscal year to $2.72 per share from $1.30 per share in the previous fiscal year, followed by another solid jump of nearly 40% next fiscal year to $3.75 per share.

The chipmaker, however, could see faster earnings growth if it can actually help fill more orders with foundry partners like TSMC. That’s why savvy investors looking to add an AI stock to their portfolios should consider Nvidia. It’s never too late to buy a high-quality investment, but now might be a good time to look at Nvidia as it prepares for its earnings report.