Artificial intelligence (AI) giant Nvidia (NASDAQ: NVDA) is slated to report its results for the second quarter of fiscal 2025 (ended July 28, 2024) on Wednesday, Aug. 28, after the market close.
Nvidia’s upcoming earnings release is widely considered probably the most anticipated of this quarterly earnings season. That is because the corporate is viewed as a bellwether, or indicator, for the AI space and the general market.
Nvidia dominates the rapidly growing AI chip market. If it delivers stronger-than-expected results — particularly in its AI-driven data center business — that means the broad AI market might be more robust than widely believed.
Nvidia stock’s performance has also turn out to be an indicator of the likely strength of the general market. Nvidia is the second-largest stock on the S&P 500 index (behind Apple) and has been skyrocketing since early 2023, so it has been an enormous driver of the index’s overall performance.
My two-part prediction is that (1) Nvidia will beat Wall Street’s earnings estimate, and (2) it is going to achieve this by at the least 10%. We are going to get to where the ten% got here from.
Nvidia’s Q2 guidance and Wall Street’s estimates
|
Metric |
Q2 Fiscal 2024 Result |
Nvidia’s Q2 Fiscal 2025 Guidance |
Nvidia’s Projected Growth |
Wall Street’s Q2 Fiscal 2025 Consensus Estimate |
Wall Street’s Projected Growth |
|---|---|---|---|---|---|
|
Revenue |
$13.51 billion |
$28 billion |
107% |
$28.68 billion |
112% |
|
Adjusted earnings per share (EPS) |
$0.27* |
$0.622** |
130% |
$0.64 |
137% |
Data sources: Nvidia and Yahoo! Finance. Fiscal Q2 2025 ended July 28, 2024. *Reflects 10-for-1 stock split in June 2024. **Reflects the 10-for-1 stock split; calculation by the creator based on the metrics for which management provided guidance.
Nvidia has a implausible track record of exceeding Wall Street’s earnings estimates, so the probability that it is going to achieve this on Wednesday seems high.
How strong is that track record?
Nvidia’s earnings beat/miss track record
I reviewed Nvidia’s quarterly results for the last 4 years, so 16 quarters. This data goes back to the second quarter of fiscal 2021, which resulted in late July 2020. Below is the summary.
|
Period |
Period Description |
Earnings* Results Relative to Wall Street’s Consensus Estimate |
Magnitude of Earnings Beat (Average) |
Magnitude of Earnings Beat (Range) |
|---|---|---|---|---|
|
Most recently reported 16 quarters |
Full data set |
14/16 beats = 88% |
12% |
5% to 32% |
|
11 quarters, starting six quarters ago and going back |
Data set period prior to generative AI being called out as a significant growth driver |
9/11 beats = 82% |
8% |
5% to 14% |
|
Most recently reported five quarters |
Period by which generative AI has been a significant growth driver |
5/5 beats = 100% |
18% |
10% to 32% |
Data source: Nvidia. Calculations by creator. *Earnings in the shape of adjusted earnings per share (EPS). AI = artificial intelligence.
Let’s home in on the five-quarter period by which generative AI (the tech behind Open AI’s ChatGPT and other chatbots) became a significant growth driver. Stock price movements are also included.
|
Quarter |
Period Ending |
Magnitude of Earnings Beat/(Miss) |
Stock Price Change Day After Earnings Release |
|---|---|---|---|
|
Q1 Fiscal 2025 |
Late April 2024 |
10% |
9.3% |
|
Q4 Fiscal 2024 |
Late January 2024 |
12% |
16.4% |
|
Q3 Fiscal 2024 |
Late October 2023 |
19% |
(2.5%) |
|
Q2 Fiscal 2024 |
Late July 2023 |
32% |
0.1% |
|
Q1 Fiscal 2024 |
Late April 2023 |
18% |
24.4% |
Data sources: Nvidia’s earnings reports, Yahoo! Finance, and YCharts.
Key takeaways:
-
Nvidia has exceeded Wall Street’s earnings estimate in every quarter since generative AI became a significant growth driver.
-
Nvidia’s earnings beats, on average, have turn out to be larger in, let’s call it, the generative AI era.
Prediction: Nvidia will surpass Wall Street’s earnings estimate by at the least 10%
Last quarter, Nvidia beat the Street’s earnings estimate by 10%. Within the last five quarters — the generative AI era — the corporate’s earnings beat has generally decreased in size: 10% (most up-to-date), 12%, 19%, 32%, and 18%. So, I’m using the smallest earnings beat as my prediction. I’m using the smallest and never, say, the typical due to the trend in the info.
The larger picture: Nvidia stock is probably going not as pricey because it may appear
Since generative AI entered the scene, Nvidia’s earnings beats have turn out to be notably larger (averaging 18%). I feel this trend will proceed.
The information in this text weakens the argument that goes something like: “Nvidia stock is overvalued because its forward price-to-earnings (P/E) ratio is X.” (The forward P/E is 46.2, as of Aug. 26.) A forward P/E uses an estimate for the earnings value, generally Wall Street’s. And people estimates are likely notably too low, which inflates the forward P/E.
Must you invest $1,000 in Nvidia immediately?
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Beth McKenna has positions in Nvidia. The Motley Idiot has positions in and recommends Apple and Nvidia. The Motley Idiot has a disclosure policy.
Prediction: Nvidia Will Beat Wall Street’s Earnings Estimate by 10% or More on Wednesday was originally published by The Motley Idiot