Prediction: Nvidia will crush Wall Street expectations on Aug. 28 — but there’s a catch for AI stock

Nvidia (NVDA -0.69%) was the most influential stock of 2024. Rising demand for artificial intelligence (AI) spurred enormous sales and earnings growth for the company, and the business momentum translated into incredible valuation gains.

The processing leader’s share price has surged 161% in trading this year alone, and its incredible performance has been an optimistic catalyst for the broader market and other individual players in the AI ​​space. Now, Nvidia stock is on the verge of its next big test.

After the market closes on Wednesday, August 28, the company will release results for the second quarter of its 2025 fiscal year (which ended on July 28). Management will also host a conference call to provide investors with additional insight into the business and its prospects.

The earnings release is likely to be one of the biggest stock market events this year, and anticipation on Wall Street is high. There is a lot of speculation that Nvidia will beat earnings expectations and predict that the AI ​​giant will comfortably beat most targets. But buckle up, because this one could get wild.

Nvidia looks poised to smash sales and earnings targets

In its fiscal first quarter 2025 update, Nvidia management guided for sales of about $28 billion in the second quarter. If the company achieves this goal, it would mean annual sales growth of 107%. Management also expects Nvidia’s gross margin to increase to 74.8%. Those numbers are nothing to sneeze at.

Wall Street is even more bullish, with the average analyst estimate calling for the AI ​​leader to post $28.6 billion in sales during the period. So far, the company has built an impressive array of performance beats. Take a look at the chart below, which tracks Nvidia’s revenue versus Wall Street expectations over the company’s last four reported quarters.

Data sources: Nvidia and CNBC.

With the company’s margins fantastic, the sales beat also meant the company’s earnings crushed Wall Street expectations. Over the past year, the company’s non-GAAP (adjusted) quarterly earnings beat Wall Street’s midpoint target by an average of 17.3%.

Investments in the technology industry are flashing

There’s a very good chance that Nvidia will be able to beat its own targets and average Wall Street estimates with its next quarterly report. Here’s why.

With its latest quarterly report, Microsoft announced $19 billion in capital expenditures (capex) — almost all of which will go toward improving the company’s cloud and AI infrastructure. Capex was up 35% from the previous quarter, and management also announced that spending is on track to continue rising in the year ahead. Microsoft is believed to be Nvidia’s biggest customer, and increased spending on AI infrastructure is a clear bullish indicator.

The software giant wasn’t the only one to offer encouraging investment news recently. Meta platformsanother big Nvidia customer, also raised its capex guidance range with second-quarter results it released late last month.

In general, the feeling among many leading tech companies seems to be that it’s better to invest heavily in AI right now than risk being left behind or catching up with competitors. Along with promising equity data from the tech giants, this bodes well for Nvidia — and I think the company will beat top- and bottom-line expectations in Q2.

But there is a catch.

Image source: Getty Images.

Nvidia stock needs more than strong second-quarter results for a rally after the earnings increase

While the average Wall Street target calls for Nvidia to report $28.6 billion in revenue for the second quarter, some analysts set the target significantly higher. For example, HSBC the business is expected to report $30 billion in revenue for the period.

Beating Wall Street’s average target is often enough to trigger bullish valuation momentum for a company, but that’s not always the case. Hot stocks, in particular, are often held to higher standards — investors looking for the business to deliver results that match or exceed high expectations. It’s also worth noting that Wall Street analysts have become more accurate in modeling the company’s performance in the last reporting year, with Nvidia’s quarterly sales decline going from 20.4% in the second quarter of last year to 5.6% in the first quarter of this year.

Even if Nvidia manages to far exceed Wall Street’s average targets, there are other catalysts that could lead to volatile trading after earnings. Investors will also have the company’s current quarter guidance and future roadmap under the microscope, and reports have emerged that the AI ​​leader may delay the launch of its next-generation Blackwell processors. Depending on what Blackwell news Nvidia has to share, the stock could see big moves in either direction.

So even with signs that the AI ​​luminary will deliver strong results in the second quarter, investors should understand that the stage could be set for volatility after the earnings review. Rather than trying to time short-term buy and sell moves around the company’s stock price shortly after earnings, it makes more sense to approach an investment in Nvidia with the company’s long-term outlook in mind. Things continue to look pretty promising on that front.