All eyes are on again Nvidia (NASDAQ: NVDA) this week.
The artificial intelligence (AI) chip superstar is expected to report earnings for the second quarter of fiscal 2025 (which ended July 28) after the close of business on Wednesday, August 28. As with its previous quarterly reports, the results are eagerly anticipated.
Nvidia is getting a lot more attention these days for its leadership in the generative AI revolution. The launch of OpenAI’s ChatGPT accelerated demand for graphics processing units (GPUs) and other more advanced components that many enterprises use to run complex AI models.
There is a lot of speculation surrounding the upcoming earnings report, as Nvidia’s results are likely to have a major impact on whether the stock market, driven by the AI boom, will continue its upward trend or retreat amid concerns about a potential AI bubble.
It’s impossible to consistently predict a company’s quarterly results or the market’s reaction to them, but Nvidia stock watchers have one advantage: Most of its big tech peers have already reported second-quarter earnings, and their CEOs have been commenting on the state of the nascent AI industry. For investors, there were a few key insights that offer clues to Nvidia’s second-quarter performance.
Demand for Nvidia products is alive and well
While there was some concern in the stock market that AI stocks were entering a bubble, especially when shares of Nvidia and similar companies fell sharply from July to early August, it’s clear that there is still a shortage of Nvidia components as companies rapidly add and expand new data centers.
Talking about TeslaDuring the company’s second-quarter earnings presentation on July 23, CEO Elon Musk not only gave Nvidia a big thumbs up, but also highlighted the product’s limited supply. He said:
I have to preface this by saying that I’m incredibly impressed with Nvidia’s execution and the capability of their hardware. And what we’re seeing is that the demand for Nvidia hardware is so high that it’s often too hard to get the GPUs. I think I’m quite concerned about actually being able to get … Nvidia GPUs and when we want them.
Musk leaves little doubt that the supply-demand imbalance that has caused Nvidia hardware prices to skyrocket and sales to soar has continued into the second quarter.
In the same way, Meta platforms CEO Mark Zuckerberg offered his perspective on the changing AI market during the July 31 earnings call, saying, “We expect that sufficient computing capacity will be critical to many of these opportunities. That’s why we’re making meaningful investments in infrastructure to support our core AI work, in content and ad ranking, as well as in our generative AI and advanced research efforts.”
Expressions like “having sufficient computing power” and “making a meaningful investment in (AI) infrastructure” essentially mean “buying Nvidia components.”
Meta CFO Susan Li also made it clear that this trend is only going to continue: “We expect, again, to significantly increase our investments in AI infrastructure next year,” which bodes well for Nvidia.
Zuckerberg delved deeper into his own thinking and that of many of his colleagues during a podcast interview with a Bloomberg reporter. He acknowledged that there was a risk of spending too much on AI infrastructure, but added that the bigger risk was underinvesting, “because the downside of being behind is you’re not positioned for the most important technology for the next 10 to 15 years.”
Alphabet CEO Sundar Pichai echoed that sentiment, saying during the company’s recent earnings presentation, “When we go through a period like this, the risk of underinvestment is much greater than the risk of overinvestment.”
Is it a bargain to buy Nvidia based on the earnings report?
For Nvidia investors, the above statements should be reassuring that business continued to thrive in the second fiscal quarter. Financial reports and statements from the “Magnificent Seven” companies indicated that spending on AI infrastructure continued to rise, and tech giants like Meta Platforms expect that to continue next year.
Whether Nvidia shares rise following its earnings report will depend on how its results compare to analyst estimates. Currently, the average Wall Street analyst is expecting revenue of $25.64 billion in the quarter, up 90% from the year-ago quarter, and expects adjusted earnings per share to rise to $2.45 from $1.19 in the second quarter of fiscal 2024.
The above statements from the CEO are no guarantee that Nvidia will rise based on its earnings report, but they do provide strong evidence that the AI chip giant has a bright future ahead of it, as all major tech companies plan to continue buying its product.
Reason enough to buy Nvidia shares before the earnings figures are announced, regardless of the price development on Thursday.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia and Tesla. The Motley Fool has a disclosure policy.
Should You Buy Nvidia Before August 28? Here’s What Its Billionaire CEOs Say was originally published by The Motley Fool
