Nvidia Earnings: Chipmaker Faces Daunting Q3 Challenge Amid Sky-High Expectations

After surging nearly 20% from the beginning of the month, Nvidia (NASDAQ:NVDA) stock hit and all-time high of $499.60 before undergoing a correction on Wednesday, closing the day down 1.55%. The $500 level, which is a major psychological level, seemed to have generated profit-taking just like it did at the end of August and the beginning of September.

Against this backdrop, investors are wondering whether to expect a sustained correction phase for the stock, or whether it's just a brief breather before new highs.

However, a large part of the answer will be provided by the quarterly results due next Tuesday, November 21, after the market closes.

Before going into the details of consensus forecasts and speculating on the possibility of a good or bad surprise for this key earnings report, let's recall that recent news has been rather positive for Nvidia.

In particular, the most recent gains have been driven by the announcement that Nvidia has upgraded its H100 artificial intelligence processor.

The new chip, which takes the name H200 and will be available in the second quarter of 2024, boasts as its main improvement high-bandwidth memory, one of the most expensive parts of the chip that defines the amount of data it can process quickly.

Nvidia dominates the AI chip market, powering OpenAI's ChatGPT service and many similar generative AI services.

The addition of high-bandwidth memory and a faster connection to the chip's processing elements means that these services will be able to produce a faster response.

The launch of this new chip is also seen by analysts as a response to the challenges posed by competitors seeking to challenge its dominance in the artificial intelligence sector.

What Is the Consensus Forecast for Nvidia’s Revenues and Profits?/h2

The quarterly results due next Tuesday will arrive against a backdrop of high expectations and optimism for Nvidia.

Indeed, analysts are forecasting strong growth in profits and sales. Indeed, EPS is forecast at $3.37 by consensus, almost 25% higher than in the previous quarter, and almost 6 times higher than in the same quarter of the previous year.

As for sales, the consensus is $15.989 billion according to InvestingPro , which would represent growth of 18.3% quarter-on-quarter, and around 170% year-on-year.

Source: InvestingPro

It's also worth pointing out that Nvidia had surprised many with its previous results, announcing EPS more than 30% above consensus, and sales that exceeded expectations by 21.8%.

Source: InvestingPro

Exceeding analysts' forecasts has become a habit for the company in recent years, as it has exceeded revenue expectations for the last 8 consecutive quarters, and for 6 of the last 8 quarters as far as earnings are concerned.

Source: InvestingPro

It's also important to point out that, as a result of the above, the average volatility of Nvidia shares the day after their quarterly releases is high, as can be seen in the table below from InvestingPro .

Source: InvestingPro

Investors Focused On AI-Related Chip Sales/h2

AI chip sales will be most closely watched in the upcoming earnings. Major US and Chinese tech players have stocked Nvidia's A100, H100 and H800 GPUs, including Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), Tencent and ByteDance.

According to Jon Peddie Research estimates, Nvidia's GPU shipments accounted for 87% of the total market during the quarter, followed by 10% from AMD (NASDAQ:AMD) and 3% from Intel (NASDAQ:INTC).

What's more, despite the Biden administration's restrictions on exports to China, Chinese tech companies have already invested in the latest AI chips designed for China, with Tencent, for example, declaring that it had at least two more generations of Nvidia's H800 chips in stock when it presented its Q3 results.

Thus, the consensus forecast is for revenues from the data center division, which includes AI services, to come in at $12.73 billion, up 232% year-on-year.

Nvidia's gaming division is also expected to post solid sales thanks to the integration of AI. In May, Nvidia unveiled the NVIDIA Avatar Cloud Engine (ACE) for Games, "a custom AI model casting service that transforms games by bringing intelligence to non-playable characters (NPCs) through AI-powered natural language interactions", which could help Nvidia regain market share in the games sector.

The consensus forecast for Nvidia's games division is $2.7 billion, representing year-on-year growth of 71%.

Analysts Forecast a Stronger Rise for Nvidia, but InvestingPro Models Call For Caution/h2

Analysts remain optimistic, with the average target of the 49 analysts following the stock standing at $641.37, more than 31% above Wednesday evening's closing price.

Source: InvestingPro

However, the range is wide, with the most pessimistic analyst targeting $439 (-10.2%), and the most optimistic $1,100 (+125%).

On the other hand, the InvestingPro Fair Value, which is the average of 13 recognized financial models, is limited to $383.65, i.e. almost 21% below the current share price, which calls for caution, especially as details of the models show that none of them values the share above its current price.

Source: InvestingPro

Conclusion/h2

To conclude, expectations are high for Nvidia's Q3 results due next Tuesday, and come at a time when the stock has been rising sharply since the beginning of the month, and has just been blocked once again by the major $500 threshold.

Against this backdrop, the company will have no room for error and could be heavily punished for the slightest breach. On the other hand, the positive sentiment surrounding Nvidia is such that investors will no doubt not hesitate to push the stock higher in the event of good news.

****

Buy or sell? Get the answer with InvestingPro at half price for Black Friday!

Timely information and informed decisions are the keys to maximizing profit potential. This Black Friday, make the smartest investment decision on the market and save up to 55% on InvestingPro subscription plans.

Whether you're a seasoned trader or just starting out on your investment journey, this offer is designed to equip you with the wisdom to trade smarter and more profitably.

Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.