Nvidia Q2 sales likely to double, even a slight miss could hurt the stock

By Arsheeya Bajwa

(Reuters) – Nvidia is likely to report on Wednesday that its second-quarter revenue doubled. But investors accustomed to its successful results will expect even more from the AI ​​chip giant.

A beat or miss on Wall Street expectations could either make or break an AI rally on Thursday, a day after Nvidia reported earnings for the May-July period.

The company’s stock has risen more than 150% this year, adding $1.82 trillion to its market value and lifting the S&P 500 to new highs.

The stock is valued at about 37 times its forward earnings, compared with an average of about 29 for the top six technology companies in the benchmark index that includes the chipmaker.

Tech heavyweights including Microsoft, which are spending heavily to build their AI infrastructure, have bought Nvidia’s powerful graphics processing units that enable large amounts of fast computing. These chips are hard to replace in today’s data centers, which has boosted Nvidia’s fortunes dramatically.

Nvidia is expected to have posted a roughly 112 percent year-over-year increase in second-quarter revenue to $28.68 billion, according to LSEG data on Aug. 23.

But its adjusted gross margin likely fell more than 3 percentage points to 75.8 percent from the first quarter, weighed down by the cost of ramping up production to meet rising demand.

“They’re not just a benchmark for chips, but they’re a benchmark for AI as a whole,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns shares in major US tech firms including Nvidia .

“If Nvidia fails, (investors will) sell every AI company.”

Some investors are concerned about the company’s ability to meet lofty expectations and have questioned the pace of AI spending by Nvidia’s biggest customers.

Those concerns sent Nvidia stock down 20 percent through much of July and early August, though a recent rally has left the stock about 5 percent below June’s all-time high.

There could be more issues surrounding potential production delays for Nvidia’s next-gen Blackwell AI chips. CEO Jensen Huang said in May that the chips would ship in the second quarter, but analysts have pointed to design hurdles that could push back the timeline.

That means revenue growth could be hit in the first half of next year, research group SemiAnalysis said. Margins could also be squeezed if Nvidia’s chip contractor TSMC raises taxes, a possibility the Taiwanese firm recently hinted at.

The story continues

Nvidia is likely to forecast a 75% rise in third-quarter revenue to $31.69 billion, LSEG data showed, ending its five-quarter stretch of triple-digit growth and reflecting tough comparisons from a year ago , when it rose about 206% to $18.12 billion. .

Over the past three quarters, Nvidia’s growth has exceeded 200%.

“We’re getting at the law of large numbers here, once a company gets to a certain size, it just physically can’t sustain the same growth,” said Michael Schulman, chief investment officer at Running Point Capital.

Some analysts said Nvidia could offset much of the blow from the Blackwell chip delay by replacing those orders with earlier-generation Hopper chips. The Hopper family of processors is not as powerful or profitable as the Blackwell, but it is sufficient for most AI-related applications.

Investors will also be looking for updates on AI processors for the Chinese market, where sales of its most advanced chips are banned by the US government.

Nvidia’s China-focused processors, called H20 and less powerful than its best chips, could help the company win business over the next few quarters in a major market where domestic champion Huawei has emerged as a competitor.

There are also growing concerns about the company’s practices. US regulators are looking into whether Nvidia has pressured cloud providers to buy more products and whether it is trying to bundle its networking equipment with their sought-after AI chips.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Sayantani Ghosh)