The Bulls are so blindsided by the AI hype surrounding Nvidia (NVDA) ahead of earnings this week, they may be forgetting a key ingredient of the story.
If Nvidia can’t make enough of its in-demand AI chips that power large language models, then it probably can’t meet Wall Street’s ever-rising earnings expectations. And when it does, the Nvidia hype balloon may pop.
“Nvidia’s expectations have risen steadily in recent weeks and the investor debate appears to be focused on supply rather than demand,” Stifel analyst Ruben Roy noted in a new customer note Tuesday.
Roy added that concerns about delivery and the near-term impact on Nvidia’s guidance are “top of mind.”
Nvidia is seen as the leader in the AI space because of the H100 chips that power OpenAI’s ChatGPT platform and other burgeoning tech applications. The company has also closed high-profile generative AI chip deals with ServiceNow (NOW) and Snowflake (SNOW).
Strong demand caused a significant upward reset of Nvidia’s expectations on May 24. Nvidia said it expects Q2 revenue to be about $11 billion, plus or minus 2%. Wall Street expected $7.2 billion.
Nvidia’s market cap exploded by $184 billion the next day as investors scrambled to get their hands on a piece of a fast-growing story.
Nvidia’s shocking outlook for May braces Wall Street for big, positive guidance from the company when it reports earnings on August 23.
HSBC, KeyBanc and BMO Capital Markets are the latest investment banks to raise their Nvidia price targets to Q2 results. And Wells Fargo, Baird and Morgan Stanley got the pre-earnings buzz last week with their own bullish notes, Yahoo Finance’s Dan Howley reported.
“The guidance for the past quarter was pretty amazing,” Bernstein analyst Stacy Rasgon said on Yahoo Finance Live (video above). “I had to look at the number twice. I couldn’t register it in my head and I’ve been doing this job for quite a long time. I’ve never seen such a guide from an established company on a large scale like we saw. So that was pretty incredible.”
Shares of Nvidia are up 15% in the past week alone, putting year-to-date gains at 221%.
But the uncertainty over chip supply should at least be acknowledged by the Nvidia bulls, as it is very real.
VentureBeat reported that power players in technology such as Oracle (ORCL), Meta (META), and Microsoft (MSFT) may want hundreds of thousands of Nvidia’s H100 chips. Insatiable demand for the chips fuels fears of shortages in Silicon Valley and may limit Nvidia’s revenue in the near term
“Who gets how many H100s and when is the biggest gossip in the valley [right now],” Posted tech insider and top data scientist Andrej Karpathy on X, formerly known as Twitter, earlier this month.
Nvidia bull Rasgon also recognized the problem as a major risk.
“The supply is very limited, so customers can’t get what they want,” explains Rasgon. “And there’s a general behavior that happens in semiconductors and a lot of other places. It’s called double ordering. If people can’t get what they want, they order more.”
“And with Nvidia, that’s one of the main controversies, is this new level of demand that we’re seeing, is that kind of a new foundation for growth? Or is it like pull-forward and panic buying and is there an air pocket?” continued Rasgon. “And look, what are the chances of Nvidia seeing an air pocket at some point? It’s probably 100%. We’ve seen them before. We’ll see it again.”
Brian Sozzi is the editor-in-chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn. Tips on deals, mergers, activist situations or anything else? Email to [email protected].
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