3 Reasons to Buy Nvidia Stock Before August 28th

Nvidia (NVDA -2.25%) is set to release its fiscal second quarter 2025 results (for the three months ended July 28) on August 28, and analysts expect another quarter of outstanding growth from the company.

More specifically, LSEG Data & Analytics expects Nvidia’s revenue to grow 112% year-over-year to $28.6 billion. That’s slightly higher than the midpoint of Nvidia’s $28 billion revenue guidance range for Q2. However, LSEG data indicates that Nvidia’s adjusted gross margin may have declined from the fiscal first quarter due to the company’s investments in increasing manufacturing capacity.

If that’s correct, Nvidia’s gross margin would fall below its guidance of 75.5% for the fiscal second quarter. Now, a decline in Nvidia’s quarterly performance or accompanying guidance could send its stock lower. If this is indeed the case, it might be a good idea for savvy investors to buy this semiconductor.

However, it cannot be ruled out that Nvidia’s results and guidance will exceed expectations. In this article, we’ll examine three reasons why investors should consider buying Nvidia stock ahead of future results.

1. An attractive valuation makes the stock worth buying right now

Nvidia’s expensive valuation has been a cause for concern in recent months, which isn’t surprising given the stunning run the stock has enjoyed since late 2022. However, a closer look at the stock’s multiples will clearly show that investors get a good return. trade this leading chipmaker just before its earnings report.

Nvidia currently trades at 48 times forward earnings. For comparison, the US tech sector currently has an average earnings multiple of 46. Meanwhile, the stock’s price-to-earnings-growth ratio (PEG ratio) provides an even better measure of how attractively valued Nvidia is right now. This is because the PEG ratio is a forward-looking valuation measure calculated by dividing a stock’s trailing P/E ratio by the estimated earnings growth it could produce.

A PEG ratio of less than 1 indicates that a stock is undervalued. By that measure, Nvidia stock looks grossly undervalued in terms of the earnings growth it’s likely to produce.

NVDA PEG Ratio data by YCharts

As such, Nvidia is still a solid bet for investors looking to add a growth stock to their portfolios right now, especially given that there are signs that it could deliver better-than-expected results.

2. These AI hardware companies indicate that Nvidia is ready to deliver solid results

Earnings season is about to end, which means we can get a fair idea of ​​the health of the AI ​​hardware market based on the results of other companies in this ecosystem.

For example, Nvidia’s foundry partner Taiwan Semiconductor Manufacturing (TSM -1.29%)known as TSMC, saw 33% year-over-year growth in the second quarter of 2024 (which coincided with two months of Nvidia’s fiscal second quarter). That was a significant jump from the 13% year-over-year revenue growth TSMC delivered in the first quarter of the year. It’s also worth noting that TSMC’s July revenue rose 45% year-over-year, outpacing the growth it saw in the first two quarters of the year.

TSMC has been working hard in recent months to increase its packaging capacity for advanced chips that are used to produce AI chips for Nvidia. So the increase in TSMC’s quarterly revenue growth provides strong evidence of Nvidia’s robust revenue and earnings growth, especially since Nvidia is TSMC’s second-largest customer.

However, TSMC isn’t the only AI hardware player that has seen significant revenue growth recently. Super Micro Computer (SMCI -8.27%)which makes AI server solutions used to mount chips from chipmakers such as Nvidia, reported a 143% year-over-year increase in revenue in the fourth quarter of fiscal 2024 (which ended June 30).

Supermicro attributed its phenomenal growth to “strong demand for next-generation Direct Liquid (DLC) air-cooled rack-scale AI GPU platforms.” Additionally, the midpoint of Supermicro’s current quarter revenue guidance stands at $6.5 billion, which would be a 216% increase over the same quarter last year.

Again, this is an indication that Nvidia may be ramping up production of its next-generation Blackwell chips, which the company had promised would arrive later in 2024. Nvidia, therefore, could not only deliver results that could exceed expectations Wall Street, but its Guidance could also prove solid and help the stock sustain its amazing rally.

3. Big Tech capex growth is good news for Nvidia investors

Tech titans like Microsoft, Meta platforms, Alphabetand Amazon have increased their capital expenditures (capex) to strengthen their AI infrastructure. For example, Microsoft’s capital spending for fiscal 2024 is up 75% from the previous year to nearly $56 billion. The company expects to raise its capex again in the current fiscal year to spend money building more AI services so it can position itself for long-term growth.

Alphabet, on the other hand, could end the year with about $50 billion in investments as it plans to continue pouring money into servers and data centers. That would be a major increase from last year’s investment capital of $32 billion. Even Meta raised its 2024 capex guidance to a range of $37 billion to $40 billion, up from a previous range of $35 billion to $40 billion. The social media giant’s capex in 2023 was $28 billion, and its capital spending is expected to continue rising through 2025.

Investors should note that all of these companies were Nvidia customers, purchasing the company’s chips to train and deploy AI models. Even better, they’re also poised to adopt the chipmaker’s next-generation Blackwell processors, and Nvidia expects demand for these new chips to outstrip supply by 2025. That potential spending could carry the company for quarters and even years following.

All in all, there is enough evidence that demand for Nvidia’s AI chips continues to remain healthy, allowing it to deliver results that could beat consensus estimates and guide above expectations. If that happens, Nvidia stock could get another shot in the arm, which is why it might be a good idea for long-term investors to buy this AI stock before it rises even more after August 28.