Stock Of Nvidia Has More Than Doubled This Year

The shares of Nvidia Corp. have experienced significant growth this year, more than doubling in value, as mainstream investors became captivated by the potential of artificial intelligence. However, the upcoming financial results may not provide sufficient justification for the stock's current price, as analysts are looking for stronger forecasts.

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Nvidia is scheduled to release its fiscal first-quarter earnings after the market closes on Wednesday. Expectations indicate significant year-over-year declines, with projected sales dropping over 21%, adjusted earnings falling nearly a third on a per-share basis, and the core gaming-chip division expecting a nearly 50% decline in revenue.

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Nevertheless, analysts widely anticipate Nvidia to surpass these expectations due to robust data-center sales. They also expect the company to raise its guidance as orders pour in for equipment necessary to develop the types of machine learning that tech companies have been promoting in 2023. The anticipation of a successful quarter follows a March developers conference focused on AI opportunities, during which CEO Jensen Huang expressed optimism about substantial financial returns in the coming year. Analysts now expect the actual forecasts to reflect this positive outlook.

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Christopher Rolland, an analyst at Susquehanna Financial, highlighted the impact of the "AI arms races" on data-center sales and expects a constructive outlook in this area. He noted that Microsoft, one of Nvidia's customers and a prominent player in generative AI through its investment in OpenAI and use of ChatGPT, is just one of many companies seeking to invest in Nvidia's technology. Rolland emphasized the ongoing AI gold rush and subsequent demand for data-center GPUs as the primary drivers behind the expected better results and guidance.

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The growth of AI products is anticipated to benefit chip makers, including Nvidia, Advanced Micro Devices, and Intel. Cloud-service providers, known as "hyperscalers," such as Microsoft's Azure, Amazon's AWS, Google Cloud, and Oracle Cloud Infrastructure, rely on these companies' chips to build data centers capable of processing massive AI workloads.

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C.J. Muse, an analyst at Evercore ISI, stated that everyone in the industry is fully committed to AI. He expects Nvidia's commentary to support the thesis that the industry is on the cusp of a significant monetization event, specifically with regards to Large Language Models (LLM), Generative AI, and the accelerated adoption of transformer technology. Muse believes these factors will drive substantial demand for Nvidia's products in terms of training and inference.

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Analyst Matt Bryson of Wedbush noted that Nvidia is exceptionally well-positioned in the semiconductor industry due to its dominant presence in generative AI and multiple upcoming product cycles in both the data center and gaming sectors. Consequently, he believes the key question will be the magnitude and nature of the upside that Nvidia will realize.

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Although concerns about Nvidia's ability to meet the demand for gaming chips and potential supply limitations may persist, KeyBanc analyst John Vinh, who has an overweight price target, expects a quarter of beating expectations and raising guidance. He believes that investors will overlook these concerns.

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For the first fiscal quarter, analysts predict adjusted earnings of 92 cents per share on revenue of $6.53 billion, representing a decline from the previous year's $1.36 per share on revenue of $8.29 billion. Gaming sales are expected to reach $1.97 billion, almost half of last year's $3.62 billion, while data-center sales are projected to increase by 4% to $3.9 billion.

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The guidance provided by Nvidia's executives for the second quarter will be of particular importance. Analysts anticipate earnings of $1.07 per share on revenue of $7.17 billion, with $4.29 billion coming from data-center sales and $2.13 billion from gaming. Nvidia recently announced its new line of RTX 4060 cards.

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