NVIDIA's Q2 Earnings: Mixed Reactions Amidst Growth Concerns

Nvidia's Guidance Is A Disappointment (NASDAQ:NVDA)

NVIDIA Corporation (NASDAQ:NVDA) reported its most recent quarterly earnings results on Wednesday afternoon. The company beat estimates once again, but Nvidia is experiencing a growth slowdown -- while growth is still great in absolute terms, it is not as great as it was a year ago. The market's reaction was rather negative, and a new $50 billion buyback authorization didn't change that. I have written about Nvidia Corporation in the past. My most recent article is from May, where I covered the company's first-quarter earnings results and the stock split the company announced at the time. With one quarter having passed since then, and with Nvidia announcing its most recent quarterly earnings results today, it is time for a thesis update. Nvidia Corporation announced its Q2 results following the market's close on Wednesday. The headline results can be seen in the following screencap from Seeking Alpha: The company delivered another double beat, relative to the analyst consensus estimate, but the magnitude of the beat wasn't as large as in some quarters in the recent past. The revenue estimate was beaten by around 4%, while the earnings per share estimate was beaten by around 6%. That's good, but not as great as the revenue and earnings per share beats of around 20% and 30%, respectively, one year ago. The market seems to be a bit disappointed, as Nvidia's shares are trading down 5% in after-hours trading at the time of writing. This could change, of course, and the share price might be different on Thursday, as investors will digest Nvidia's results and guidance over the coming hours. Nvidia generated massive revenue growth on a year-over-year basis, which was expected by everyone. Like in previous quarters, this business growth was largely driven by Nvidia's data center segment. Here, revenues were up 155% compared to the previous year's quarter, while overall revenues were up by 122% compared to one year earlier. Data center growth was thus above the growth rate experienced by Nvidia's other segments, i.e., gaming, professional visualization, auto, and OEM & other. On one hand, this is good news for Nvidia -- the data center business is the largest unit by far, and an above-average growth rate here means that company-wide growth is seeing a big tailwind. On the other hand, though, Nvidia's reliance on its data center business, both when it comes to growth and to overall revenue generation in absolute terms, means NVDA could run into major issues if it were to slow down. Nvidia's other business units are not large and fast-growing enough to offset potential future headwinds in the data center business. Investors should not ignore this massive reliance on a single business unit, I believe. Nvidia's sequential revenue growth rate was 18% in the previous quarter, and 15% during the most recent quarter. Growth thus slowed down on a sequential basis -- this trend has been intact for some time (before the 18% growth rate reported for the first quarter, Nvidia generated revenue growth of 22% in Q4). This is not overly surprising, however, as the law of large numbers dictates that a very high growth rate can't be maintained forever. Still, with the sequential growth rate slowing down meaningfully for several quarters in a row, Nvidia seems to be maturing at a substantial pace. This is even though the 15% quarterly revenue growth rate is still strong compared to most other companies -- it is just not strong compared to the growth Nvidia delivered a couple of quarters ago. Of course, Nvidia's revenue performance is just one of several important factors when analyzing the company's quarterly report. Nvidia's profit performance is critical as well, and so is the company's guidance for the current quarter. When it comes to profits, Nvidia generated a gross margin of 75.7% on an adjusted basis. That's excellent in absolute terms, but represents a decline compared to the previous quarter -- in Q1, Nvidia's gross margin stood at an even higher level of 78.9% (on an adjusted basis). The company's gross margin thus declined by a little more than 300 base points on a sequential basis, which is not great. While margins were up on a year-over-year basis, the year-over-year margin growth rate slowed down to around 450 base points -- it stood north of 1,000 base points a couple of quarters ago. It remains to be seen whether the gross margin dip that Nvidia experienced during the second quarter was a one-time thing, or whether margins have hit a ceiling and can't grow higher going forward. They are, after all, pretty high in absolute terms. The Blackwell ramp-up could play a role in the margin decline we have seen during the second quarter. The good news is that operating margins continued to expand, mainly thanks to operating leverage: While operating expenses rose substantially, by more than 50%, the revenue growth rate and the gross profit growth rate were even higher than that, allowing Nvidia to expand its operating margins and to grow its profits at a strong pace. Both net income and earnings per share were up by 152% year over year, as the share count remained unchanged from the previous year's quarter -- despite hefty buyback spending. Share issuance to the company's management team and employees fully offset any share count reduction via Nvidia's buybacks, despite $15 billion being spent on buybacks during the first half of the current year alone. Going forward, Nvidia may ramp up its buybacks even further, as the company has, as mentioned, announced a new $50 billion share repurchase authorization. But even if Nvidia were to increase its buyback pace to $50 billion a year (from the H1 pace of $30 billion a year), the share count reduction would likely be negligible. Share issuance to employees and management will continue, and for a company that is valued at more than $3 trillion, $50 billion in buybacks pencils out to just 1.5% in gross buybacks. Buybacks will thus, I believe, not be a major source of earnings per share growth. Instead, the company will continue to rely on underlying business growth and operating leverage going forward. When it comes to business growth in the current quarter, Nvidia's guidance gives us some hints. The company forecasts revenues of $32.5 billion, plus or minus 2%. Looking at the guidance midpoint, the implied sequential growth rate is 8%. If Nvidia hits the guidance midpoint, growth will thus slow down substantially from the first half of the current year, as sequential revenue growth was 15% in Q2 and 18% in Q1. Management might try to under-promise and overdeliver, but taking the guidance at face value, growth will not be extraordinary this quarter. An 8% quarterly growth rate isn't strong compared to what Nvidia investors got used to in the recent past, which likely helps explain the share price decline following Nvidia's earnings release. Beyond the current quarter, growth will depend on Nvidia's Blackwell to a large degree. Management's comments looked good in that regard. CEO Jensen Huang stated in the release: Hopper demand remains strong, and the anticipation for Blackwell is incredible. It is not possible to quantify what "incredible" anticipation will translate to when it comes to future revenue and profit generation, but the statement nevertheless is positive. Nvidia does not overpromise, thus when they are happy about what Alphabet Inc. (GOOG)(GOOGL), Meta Platforms, Inc. (META), and other customers think about Blackwell, then that's a good sign, I believe. Nvidia continues to grow, which is hardly a surprise. But growth has slowed down compared to prior quarters, and gross margins declined during the second quarter. Nvidia's guidance for the current quarter, Q3, implies that growth will continue to slow. This is to be expected to some degree, as no company can grow at a 100% annual pace forever, but it looks like investors still were relatively unhappy about Nvidia's results and guidance. Nvidia remains the AI data center king for now, and that won't change in the foreseeable future, I believe. But since Nvidia's shares are trading at close to 50x forward profits, and since Nvidia is valued at more than $3 trillion, the company is priced for perfection. While buying into Nvidia was an excellent choice a year ago, I'm not sure that Nvidia is an excellent investment right here. Waiting for a better entry point could pay off -- Nvidia traded more than 20% lower just a couple of weeks ago, and investors were able to buy Nvidia in the $70s this spring. With shares being very volatile, I wouldn't be surprised if a better buying opportunity emerges over the coming months. Nvidia is a strong company, but I do not believe that it trades well below fair value, which is why I give it a "Neutral" rating for now.

Nvidia Q2 FY2025 Review: Huang Fumbles, Stock Tumbles (NASDAQ:NVDA)

Ahead of its Q2 FY2025 earnings print, Nvidia Corporation (NASDAQ:NVDA) was projected to achieve quarterly revenues and Normalized EPS of $28.71B and $0.64, respectively. With Nvidia posting $30.04B in revenues and $0.68 in normalized EPS for Q2 FY2025, the semiconductor giant has delivered yet another double-beat on consensus street estimates; however, the stock is tumbling lower in the after-hours session, down -5% at the time of writing: While Nvidia is still delivering AI-powered hypergrowth, the quantum of the top and bottom-line beats narrowed further in Q2 amid a contraction in gross margins. Given the post-ER sell-off, I think it is fair to say that Nvidia failed to meet Mr. Market's lofty pre-ER expectations. In my earnings preview note, I expressed caution on NVDA: Ahead of its upcoming Q2 FY2025 report, Nvidia Corporation stock is experiencing significant volatility. While a double beat is likely, the sustainability of Nvidia's rapid growth and high margins remains uncertain. Despite Nvidia's strong business performance and leadership in the burgeoning AI chips market, I maintain a "Neutral/Hold" rating due to valuation concerns and a troublesome technical setup. Source: "Nvidia: You Have Been Pumped And Warned By The Cloud Hyperscaler Honchos." And given the adverse market reaction to Nvidia's double-beat [plus solid Q3 guidance of $32.5B ($800M above consensus estimate) and announcement of a new $50B buyback program], my neutral stance seems justified. In Q2 FY2025, Nvidia's Data Center revenue increased to $26.27B (+154% y/y, +16% q/q) driven by strong demand for Nvidia's Hopper GPU computing platform, with sequential growth coming from consumer internet and enterprise companies. While Nvidia's Data Center revenues weren't going to grow at triple-digit rates forever, the sequential growth slowing down to 16% q/q points to marked deceleration ahead! In addition to the obvious strength in the Data Center segment, Nvidia delivered strong results in its Gaming, Professional Visualization, and Automotive segments. The +16% y/y growth in Gaming was a standout number, given poor performance in this space from its rival Advanced Micro Devices (AMD). Now, at this point, Nvidia is undoubtedly a Data Center-centric business [~87% of total revenues], and so, a delayed production ramp for Blackwell due to changes in the Blackwell GPU mask threatened to introduce significant uncertainty into the semiconductor giant's otherwise rosy business outlook. However, according to Nvidia's CEO, Blackwell samples were shipped out in Q2, and the next-gen GPUs are on track for ramped-up production in the back half of FY2025. Here's what CEO Jensen Huang had to say in the Q2 FY25 release: Hopper demand remains strong, and the anticipation for Blackwell is incredible. NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI. Blackwell samples are shipping to our partners and customers. Spectrum-X Ethernet for AI and NVIDIA AI Enterprise software are two new product categories achieving significant scale, demonstrating that NVIDIA is a full-stack and data center-scale platform. Across the entire stack and ecosystem, we are helping frontier model makers to consumer internet services, and now enterprises. Generative AI will revolutionize every industry. - Jensen Huang, founder and CEO of Nvidia. Given the cyclicality associated with semiconductors and the fact that some of its largest customers - cloud hyperscalers - are building their own in-house AI chips and partnering with other players [like Advanced Micro] in the industry, I think Nvidia's medium-to-long-term demand [growth and margins] remains questionable. While Nvidia Q2 revenue guidance of $32.5B exceeding street expectations of $31.7B is positive, the gross margin contraction seen in Q2 [non-GAAP gross margins: -320 bps q/q] is set to deepen to the low-70s in the back half of FY2025. With its vast first-mover advantage in AI, Nvidia's hardware + CUDA software ecosystem is commanding tremendous pricing power. However, as I alluded to in "Nvidia Q1 FY2025 Review: AI Party Rolls On, But I Refuse To Dance," Nvidia's gross margins contracting to a low 70% level could be an indication of deteriorating pricing power [despite Nvidia's plan of generating SaaS revenues with Blackwell GPUs]. On the earnings call, Nvidia leadership said that the inventory crunch for its Hopper GPUs is easing. Did Huang & Co. just fumble the ball? Is Nvidia's current margin profile sustainable? Based on historical data for the semiconductor industry, I don't think so, but only time will reveal the truth. Now, in Q2 FY2025, Nvidia's quarterly operational cash flow rose to $14.5B (up $6.3B y/y), and quarterly free cash flow jumped to $13.5B (up $6.5B y/y) - however, both of these figures were down sequentially (on a q/q basis) due to higher cash taxes. In recent quarters, I have insisted on Nvidia strengthening its balance sheet in preparation for a cyclical downturn: While Nvidia's balance sheet is robust, I would personally like NVDA to raise some capital at current valuation to bolster its cash position and bring it in line with a level that resembles other $1.8T companies. The semiconductor industry is cyclical by nature, and I want Nvidia to have a massive cash hoard that can allow the company to keep growing through an industry downturn. Source: "Nvidia's Q4 Report Is A Blowout: Buy, Sell, Or Hold?" Yes, Nvidia's cash and short-term investments have increased to $34.8B; however, the company aggressively returning its free cash flows back to shareholders at NVDA current valuation [~20x P/S] continues to perplex me. In Q2 FY2025, Nvidia returned $7.4B to shareholders via stock buybacks and dividends, and the semiconductor giant just announced a fresh addition of $50B to its buyback program. Given the historical cyclicality associated with semis, I still think that raising capital at a $3T+ market capitalization is a far better idea for Nvidia than returning capital to shareholders via buybacks at ~20x P/S [FY2025E]. In light of Nvidia's Q2 FY2025 report, I am sticking with my pre-earnings valuation model assumptions for the semiconductor giant: On the back of a 6% post-ER dip in NVDA stock, the gap between Nvidia's stock price and our fair value estimate has narrowed; however, at $118 per share, NVDA remains significantly overvalued in my book. Assuming a base case exit multiple of 25x P/FCF, I see Nvidia rising to $165 per share by 2029. This price target translates to a 5-year expected CAGR return of ~7% from current levels. While Nvidia's 5-year expected CAGR has improved from 5.34% to 6.99% in light of its post-ER dip, it continues to fall short of my investment hurdle rate (of 15%) and long-term market - S&P 500 (SP500) - returns (of 8%-10% per year). Hence, Nvidia is still not an attractive investment under our valuation process. In my view, Nvidia Corporation remains the most obvious "picks and shovels" play in the AI gold rush; however, a lot of future success is already baked into Nvidia's current stock price, and the long-term risk/reward doesn't justify the allocation of fresh capital right now. Due to unfavorable risk/reward and sheer lack of a margin of safety, I am going to stick to the sidelines on Nvidia Corporation stock. Earlier in the week, I laid out the following scenarios: Technically, NVDA stock has regained short-term momentum ahead of earnings after re-claiming the 10-week and 20-week moving averages. However, the bounce in NVDA stock seems to be pausing at the key 78.6% Fibonacci retracement level. If we do see NVDA making a sustained push above $130, I think the ongoing bounce can extend to $140 and then to the $152-171 range. On the flip side, given the ongoing rollover in momentum indicators - Weekly RSI and MACD - selling pressure could re-appear in upcoming sessions. A strong rejection from the 78.6% Fibonacci retracement level could spark a deeper drawdown, which could send NVDA stock spiraling down to the $65-81 range marked on the chart below. Source: "Nvidia: You Have Been Pumped And Warned By The Cloud Hyperscaler Honchos." Given the 5-6% drop in Nvidia Corporation stock post-earnings, I believe we are seeing a strong rejection from the key 78.6% Fibonacci level. If this sell-off sticks and picks up steam in the upcoming sessions, a deeper drawdown to the $65-81 range is a plausible outcome for the next 6-12 months. Key Takeaway: Considering Nvidia's long-term risk/reward and technicals, I continue to rate Nvidia Corporation stock "Neutral/Hold" at $118 per share. Thanks for reading, and happy investing! Please share your thoughts, questions, or concerns in the comments section below.

Nvidia: The Market Is Wrong Again (NASDAQ:NVDA)

Nvidia's stock is priced for perfection, requiring consistent outperformance, but it remains a solid BUY given its strong growth catalysts and lack of real competitors. Nvidia Corporation (NASDAQ:NVDA) has once again reported stellar earnings results, and once again its shares depreciated right after those results were revealed. Despite this, I believe Nvidia will likely continue to exceed expectations in the coming quarters. This is thanks to the continued high demand for its existing AI GPUs and thanks to the release of new AI GPUs that should help the company create additional shareholder value along the way. My latest article on Nvidia was published in June, where I noted that the company's growth story appears to be far from over because the demand for its flagship AI GPUs is not slowing down. Since that time, Nvidia's shares depreciated, but later recovered, and currently trade around the same levels from June. However, the release of the successful Q2 earnings report could push the company's shares higher over time. The Q2 earnings report indicated that Nvidia has once again exceeded expectations as its revenues increased by 122.4% Y/Y to $30.04 billion and were above the estimates by $1.31 billion. In addition to that, its non-GAAP EPS of $0.68 was above the expectations by $0.04. Such a successful performance was possible thanks to the continuous demand for Nvidia's flagship H200 AI GPUs, which data centers are currently buying in droves to power the ongoing generative AI revolution. What's more, is that Nvidia expects the shipments of its flagship GPUs to increase in the second half of the year. This indicates that the company will likely retain its momentum and will continue to perform successfully in the following quarters. Add to all of this the fact that the company already owns ~90% of the expanding AI processors market, and it becomes obvious that Nvidia is likely to continue to exceed expectations and outperform its peers at the same time. After all, Nvidia already generates more revenues from selling its AI GPUs in a single quarter than its closest competitor Advanced Micro Devices (AMD) expects to sell in a whole fiscal year. The only major issue with Nvidia is that earlier this month, there were fears that the company would delay the release of its more powerful Blackwell AI GPU line-up. This was due to a change of the mask to improve the production yield. However, UBS a few weeks ago noted that the delay will be only a few weeks at most. Nvidia itself announced that it has started shipping Blackwell samples to its clients, and the production ramp is expected to start in Q4. All of this indicates that Nvidia's bullish story remains intact. The company already announced that it expects to generate $32.5 billion in revenues in Q3, which is above the consensus of $31.75 billion. At the same time, a few days ago, its Board of Directors authorized a $50 billion share repurchase plan. While even after such a performance and guidance, Nvidia's shares have depreciated, I believe that this is a temporary overreaction by the market. A similar thing happened in the past when Nvidia's shares depreciated after a successful earnings report but later recovered and appreciated even more once the downside risks were minimized. When it comes to valuation, it appears that Nvidia is also undervalued, especially after the recent post-market depreciation. Back in June, when my latest article on the company was published, my DCF model showed that Nvidia's pre-split fair value was $1202.15 per share, which translates to a post-split fair value of $120.22 per share. Given that the expectations were once again raised after the newest earnings report, I decided to change some assumptions in my model as well to better reflect the reality. The major thing that was changed in the updated model below is the revenue expectations for the current fiscal year from $121.84 billion before to $125.55 billion now. The reason behind the change is fairly simple. In Q1 and Q2, Nvidia generated $26.04 billion and $30.04 billion in revenues, respectively. In Q3, under the new guidance, it expects to generate $32.5 billion in revenues, while in Q4 the Street expects the company to generate $34.97 billion in revenues. That brings us to a total of $123.55 billion in revenues. Considering that in recent quarters Nvidia fairly easily exceeded its revenue expectations by over $1 billion per quarter, I decided to assume that in Q3 and Q4 the company will also exceed expectations by $1 billion per quarter. This is how I arrived at the forecast of $125.55 billion in revenues in the current fiscal year. The assumptions for other metrics remained the same as before. The cash and long-term debt data was updated. This model shows that Nvidia's fair value is $123.93 per share, which is above the fair value from the previous model and above the current market price. This indicates that Nvidia is fundamentally undervalued right now. However, I would argue that even the updated revenue assumptions in my model are fairly conservative and the upside for Nvidia's shares could be even more significant. First, there's a possibility that the FY25 revenues will be much higher. After all, the management itself noted that the shipments for its Hopper series GPUs are expected to increase in the second half of the year, and the company also expects to generate several billions by shipping Blackwell GPUs in Q4. At the same time, the growth in FY26 could also be greater since this is the year when the production of Blackwell is expected to continue to ramp up. Moreover, the release of an even more powerful Rubin AI GPU line-up in FY27 could help Nvidia stay ahead of its competitors and retain its momentum, which could improve its growth rates at the same time. Therefore, with Nvidia's bullish story remaining intact, it makes sense to assume that the upside to the company's stock could be even greater than I assume. The consensus on the Street is that Nvidia's fair value is $143.10 per share, which shows that the company is indeed undervalued, especially after the recent selloff. The biggest downside of Nvidia is that its stock is currently priced for perfection. The company needs to constantly exceed expectations and raise its guidance to ensure that a major selloff doesn't happen. It has plenty of growth catalysts for the upcoming years to ensure that it's on track to perform successfully. However, there's nevertheless a risk that a potential further delay of Blackwell could make it more challenging for Nvidia to meet its guidance. Even though it appears that that's not the case right now, it's still something that investors will be monitoring closely to make sure that there are no surprises in the upcoming quarters. Nvidia Corporation's long-term thesis remains intact for now. The company has plenty of catalysts to ensure that it continues to perform successfully in the second half of the year and finishes FY25 on a high note. The following years also look promising, given that the demand for AI GPUs is not slowing down and Nvidia doesn't have a real competitor on the horizon. As such, I believe that Nvidia remains a solid BUY, as its growth story appears to be far from over.

Nvidia's Q2 Earnings Weren't The Mic Drop Moment Bulls Expected (Downgrade) (NVDA)

Beyond the headline numbers, the sense is that the market needed a bit more, which becomes a problem when thinking about how the stock will reclaim its all-time high above $140 anytime soon. Following several bullish calls in 2023, we last covered NVDA with a hold rating earlier this year. Between parts of the growth story losing its shine and a lofty valuation, we now see room to turn more bearish with a belief that increasing volatility will be the story going forward. For what has been described as the most important stock in the world as a bellwether for the artificial intelligence revolution and sentiment towards the technology sector in general, all eyes were on Nvidia earnings. Fiscal 2025 Q2 EPS of $0.68 came in $0.04 ahead of consensus, marking a 152% increase from the period last year. Revenue of $30.0 billion increased by 122% year-over-year and was also $1.3 billion above estimates. At face value, this was a solid report. Growth was led by the core data center segment, capturing the global demand for the Hopper GPU computing platform, critical for training large language models and running generative AI applications. Smaller segments like gaming, visualization, and automotive solutions are also strong, even accelerating in recent quarters. That being said, nothing in the market occurs within a bubble. It's important to recognize that shares of NVDA had already climbed nearly 30% in the past three weeks, going back to the period of tech sector weakness in early August. That was a massive move, likely anticipating this Nvidia report, effectively pricing in the potential good news. By this measure, the selloff likely represented a sell-the-news dynamic, where the stock had already been bought on the rumor. If anything, the immediate pullback serves as a good lesson for investors that earnings are always high-risk events where any scenario is on the table. What can't be overlooked is that even as Nvidia once again exceeded expectations for sales and earnings this quarter, it's clear the size of those beats has narrowed over the past. For Q2, the EPS result was a modest 6.25% above the consensus, far from the breakthrough "mic drop" moment the company delivered last year when it blew away earnings estimates by 29%. Similarly, even as revenue this quarter was $1.3 billion ahead of what the market was forecasting, the 4.6% surprise was far less impressive than what was achieved in recent quarters. This dynamic can be extended to critique the Q3 guidance, where Nvidia expects revenue of $32.5 billion, modestly 2.5% higher than the current market consensus of $31.7 billion. Not to downplay the implied 79% y/y revenue growth which any other company would be envious of, this is a case where good may not be good enough for Nvidia, which had appeared unstoppable thus far. The problem for Nvidia becomes managing expectations. Looking out over the next two years, growth is set to dramatically decelerate from the forecast 99% annual revenue increase this year towards 15% by fiscal 2027 against the high baseline of comparison. This type of normalization is completely normal for a company transitioning from an ultra-high growth phase but also introduces several risks trading at a forward price to a sales multiple of 26x. One scenario we envision is where Nvidia falls victim to its success, as it is set to launch the next-generation Blackwell architecture AI systems. Beyond any temporary timing delays or the cadence of the rollout, what is more uncertain is the demand tailwind long-term, with forecasts related to data center builds and computing power generally highly speculative. It's possible that major customers, including mega-cap tech sector leaders that have already invested Billions in Hopper clusters, may find that an immediate upgrade to Blackwell is unnecessary. They may at least choose to be much more efficient in their next wave of investments. There is also a concern with how margins for Nvidia will evolve long-term in consideration of average pricing and gradually rising competition. Notably, the Q2 adjusted gross margin at 75.7% already ticked lower from the record 78.9% in Q1. Comments in the earnings conference call suggest a "mid-70s" target for the full year, which will be a key metric to watch going forward. So if there is a bearish case for Nvidia, it starts with a belief that consensus estimates into fiscal 2026 and 2027 have some downside. That doesn't mean sales will collapse or that "AI is a bubble," but the market may still be too optimistic about how the industry will transform and where Nvidia fits in. We rate NVDA stock as a sell under the assumption that the company has passed its peak growth stage and near-term risks are tilted to the downside. For long-time shareholders with a low-cost basis, defensive strategies such as writing covered calls could make sense. Down more than 20% from its all-time high, NVDA is already in a bear market, with an extreme range of volatility likely to continue in both directions. Shares were trading near $90 just a few weeks ago, with a return to that level well in the realm of possibilities. Investors looking at the stock for the first time may find a more attractive entry point down the line as the dust settles. On the upside, bulls will be rooting for NVDA to rebound quickly towards its record high of $140.76 as a first step to rebuilding positive momentum. A close above that level would force us to reassess our bearish outlook.

Nvidia: Triggered A Growth Slowdown Inflection (NASDAQ:NVDA)

Given the 23.7x EV/Sales fwd following the selloff, further downward adjustments to valuation multiples are expected due to growth normalization. Nvidia Corporation (NASDAQ:NVDA), the biggest beneficiary of the current AI boom, has consistently beat market lofty expectations in both growth and margin, justifying its premium valuation. However, I believe that the stock's movement is still largely driven by market momentum, supported by unsustainable expectations on its growth potential. Despite a strong 2Q FY2025 results and forward guidance, the stock still triggered an over 8% selloff, indicating that its valuation has already priced in a "better-than-expected" results. As shown in the chart below, the level of exceeded expectations has been decreasing. In early August, we saw a broad-based market selloff that led to a steep 15% decline for NVDA, but it quickly reversed its course, recouping all the losses as the market rebounded, approaching to its all-time high. In my previous analysis, I maintained a strong sell rating on the stock, expressing concerns about the significant downside risk associated with chasing the "biggest market mover." Following the 2Q FY2025 earnings release, it's clear that NVDA's growth is starting to normalize, which will impact its valuation. Since the stock is still trading at nearly 24x of EV/sales fwd after the post-earnings selloff, I reiterate my strong sell rating on NVDA. As expected by the market, NVDA topped both revenue and non-GAAP EPS estimates, delivering another quarter of triple digit revenue growth. Particularly, its Data Center segment continued to grow sequentially by double digits, up 154% YoY in 2Q FY2025. The company also forecasted a 79% YoY revenue growth for 3Q, beating market consensus as well. However, this guidance suggests that NVDA's growth may fall below triple digits for the first time in five quarters, indicating a potential "growth inflection" that could disappoint some growth-oriented investors. NVDA has maintained massive growth acceleration in its Data Center segment, reaching its peak with 427% YoY growth in 1Q FY2025. Its non-GAAP EPS growth had also been robust, consistently exceeding 400% YoY growth in recent quarters. However, signs of normalization have emerged, with a significant QoQ slowdown in revenue growth seen over the past two quarters. I believe NVDA's growth momentum is likely to decline sharply in the coming quarters, especially given the extremely high YoY comparisons heading into 2H FY2025. With margins also normalizing, I expect the company's non-GAAP net income margin to decline similarly to its non-GAAP operating income margin, anticipating a 55.4% in 3Q FY2025. This would imply an 83% YoY growth in non-GAAP EPS for 3Q, based on its revenue outlook, as indicated in the chart above. As NVDA ramps up production on its new AI chips, this is expected to impact its gross margin, which is projected to decline to the mid to low 70% range in the coming quarters as the management previously mentioned. This indicates a reversal of the previous margin expansion trend. As shown in the chart, non-GAAP gross margin, operating margin, and net income margin triggered an "inflection" in 2Q FY2025. The company has also guided for a 75% non-GAAP gross margin in 3Q FY2025, suggesting a further decline. Additionally, NVDA anticipates $3 billion in non-GAAP operating expenses for the current quarter, which allows us to calculate a non-GAAP operating margin of 65.7%, indicating a 70 bps sequential decline. Lastly, with a non-GAAP net income margin of 56.4% in 2Q FY2025, I estimate a further 100 bps sequential decline in 3Q, bringing it down to 55.4%, reflecting the continued downward trend. Unsurprisingly, the company not only significantly increased its R&D expenses but also nearly tripled its capex in 2Q FY2025 as it continues to invest heavily in AI chips. As a result, its FCF margin dropped to 44.9%, down from 57.5% in 1Q FY2025, remaining flat on a YoY basis. While I believe NVDA can sustain strong growth fueled by elevated AI investments, the growth rate will likely be significantly lower than in previous quarters, especially as the semiconductor industry becomes increasingly competitive in coming years. Earlier this month, NVDA informed major cloud providers, including Microsoft (MSFT), that its next major AI chips, Blackwell, might face a shipment delay until early 2025 due to a potential design flaw. However, CEO Jensen Huang mentioned in a Bloomberg interview that demand for the Blackwell chips has far exceeded supply. He also mentioned that production of the new AI chips has already begun, with shipments expected in 4Q FY2025. While I believe this delay will not materially impact the company's near-term growth outlook -- especially with the shipment gap likely to be filled by strong demand for Hopper chips -- the delay could still negatively affect the stock's near-term sentiment. Despite significant revenue growth, NVDA's stock is currently trading at a historical peak EV/Sales TTM, reflecting continued optimism that the company will not largely deviate from its previous growth momentum. However, even after the post-earnings selloff, NVDA's EV/Sales fwd remains around 23.7x, nearly three times that of Taiwan Semiconductor Manufacturing (TSM) and double that of Advanced Micro Devices (AMD). In addition, this multiple is also more than 30% above NVDA's 5-year average. Moreover, its forward non-GAAP P/E is trading at 42x, nearly double the sector average. I strongly believe that consistently exceeding market expectations may not be sufficient to justify the current valuation. According to Bloomberg, NVDA's 2Q FY2025 revenue came in below the highest estimates on the street, which could negatively impact the stock's sentiment. Furthermore, I think the stock's valuation should be reassessed as the company's growth and margin begin to normalize. We've seen valuations of many "pandemic beneficiaries" compress significantly due to a growth normalization process, where revenue growth slowed considerably. Therefore, I believe similar adjustments may be necessary for NVDA as its growth trajectory stabilizes. Therefore, I remain bearish on the stock currently due to its unattractive risk and reward profile. In summary, I admit that NVDA has previously demonstrated impressive growth and margin increases driven by the AI boom and consistently exceeded expectations. The post-earnings selloff despite strong 2Q results suggests that simply beating expectations may not be sufficient. The significant stock decline in early August and the normalization of growth in revenue imply continued volatility. With a "growth inflection" indicating a slowdown and lofty valuation multiples significantly above historical averages and peers, Nvidia Corporation stock faces increased downside risk. Although potential delays in new chip shipments to 4Q FY2025 may not significantly impact incremental growth, I remain bearish on NVDA, anticipating that ongoing growth normalization will compress its valuation multiples.

Nvidia's financial results are here: What to expect when the AI giant reports on its big day

Investors are about to get a fresh look at Nvidia's artificial intelligence chip sales. Nvidia (NASDAQ: NVDA) is at the epicenter of the artificial intelligence (AI) revolution. It designs the most powerful data center chips for AI development, and demand continues to outstrip supply which is driving a surge in the company's revenue and earnings. After the closing bell today -- at around 5:00pm Eastern Time and 2:00pm Pacific -- Nvidia will release its financial results for its fiscal 2025's second quarter (ended July 31). The report will give investors a fresh look at the chip giant's sales, and what it expects for the rest of this year. Here's what you need to know! Wall Street expects another blowout revenue number Nvidia's official guidance points to $28 billion in total revenue for Q2, representing 107% growth compared to the year-ago period. That might be conservative, though, because Wall Street's consensus estimate has steadily climbed over the last couple of months and currently stands at $28.7 billion (according to LSEG). Considering Nvidia delivered $26 billion in revenue during the first quarter (ended April 28), which was a whopping $2 billion more than the company had originally forecast, it's no surprise that analysts think a beat is in the cards for Q2. The data center segment accounted for $22.6 billion of Nvidia's total Q1 revenue. All eyes will be on that number in the Q2 report because Nvidia's graphics processors (GPUs) for the data center are critical to AI development. According to Wall Street, it could come in somewhere between $24.5 billion and $25.2 billion -- any result above the high end of that range will likely spark a fresh wave of enthusiasm in Nvidia stock. Tech giants like Microsoft, Alphabet and Meta Platforms (to name a few) have each committed to spending tens of billions of dollars on AI data center infrastructure this year, and a significant amount of that money will flow directly to Nvidia through GPU sales. That includes sales of the H100 GPU which set the benchmark for the industry last year, and the more recent H200 which can perform AI inference at twice the pace of its predecessor. But there's also an entirely new generation of chips on the way. Expect an update on Nvidia's new Blackwell chips Earlier this year, Nvidia announced a new GPU architecture called Blackwell. It's designed to accommodate trillion-parameter large language models (LLMs) which, until now, have only been developed by leading AI companies like OpenAI. Nvidia CEO Jensen Huang says B200 GPUs will be priced at around $30,000 to $40,000, which is in the ballpark of what many customers paid for their H100 GPUs. In other words, given the substantial performance benefits, Blackwell will make it far more cost-efficient for businesses to access and deploy the most advanced AI models. According to comments from Huang back in May, Nvidia should have started shipping Blackwell GPUs to customers in Q2, with sales ramping up as the year progresses. However, a recent report by The Information suggests a three-month delay could be due to a technical issue with the next-generation chips. Nvidia hasn't confirmed those rumored delays, but investors should listen closely for comments on Q2 Blackwell sales and any update to its guidance for the remainder of fiscal 2025. Huang previously said he expects to see "a lot" of Blackwell revenue this year, so any variation to the company's timeline could substantially impact its future financial results. Here's how Nvidia stock might react Nvidia stock has soared 765% since the start of 2023, when the AI boom really started ramping up. It's now a $3.1 trillion company, so even a small move in its stock can be worth billions of dollars to its valuation. While the performance of any stock on a given day is mostly noise, Nvidia reported its Q1 earnings after the bell on May 22, and its stock jumped 9.3% the following day. Remember, the company beat its revenue guidance by $2 billion on that occasion, so it's possible that a similar result this time around could yield a comparable increase in its stock price. With that said, Nvidia stock is currently trading 7% below its all-time high following a steep market correction earlier this month, and if the company delivers weaker results than expected, its stock could slip into a much deeper drawdown. However, Nvidia stock appears cheap right now for investors with a multi-year time horizon. Wall Street expects the company to deliver $0.64 in earnings per share in Q2, which will take its trailing 12-month earnings to $2.17. That places the stock at a price-to-earnings (P/E) ratio of 58.3. Although that's almost twice as expensive as the Nasdaq-100 index, which trades at a P/E ratio of 32, the picture appears very different when looking further into the future. Analysts predict Nvidia will generate $3.81 in earnings per share in fiscal 2026, placing the stock at a more reasonable forward P/E ratio of 33.2. In other words, as long as Nvidia's Q2 report doesn't produce a negative surprise, its stock looks like a good value at the current price for investors who can stay the course for at least the next couple of years. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Nvidia wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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NVIDIA's Earnings: 5 Reasons Why This Week's Report Could Shake Up Markets, AI Stocks, And The S&P 500 - Advanced Micro Devices (NASDAQ:AMD), Amazon.com (NASDAQ:AMZN)

As the clock ticks down to NVIDIA Corporation's NVDA Q2 2024 earnings report, set to drop after the closing bell on August 28, 2024, Wall Street is holding its collective breath. This isn't just another quarterly update - it's shaping up to be a market-defining moment that could send shockwaves through the tech sector and beyond. The anticipation is so high that finance influencers, stock market news outlets, and trading communities across the board are dedicating extensive coverage to the event. Trading education community True Trading Group is also contributing to the discussion, they hosted a special live Sunday on YouTube to analyze the potential implications of NVIDIA's report. NVIDIA, the undisputed king of AI chips, has seen its stock skyrocket by a jaw-dropping 160% year-to-date, closing at $129.37 on August 23, 2024. Now, with its market cap hovering around $3.18 trillion, all eyes are on CEO Jensen Huang and his team to deliver results that justify this meteoric rise. But the stakes go far beyond NVIDIA's own stock price - this earnings report has the potential to move markets, reshape the AI landscape, and even influence the trajectory of the entire S&P 500. As investors and analysts buckle up for what some are calling "the most important earnings report not of the year but ever," let's dive into the five key reasons why NVIDIA's upcoming announcement is sending ripples of anticipation through Wall Street and Silicon Valley alike. 1. Most Highly Anticipated Earnings: For traders and investors in the stock market, NVIDIA's upcoming earnings report is generating buzz that rivals major geopolitical events. While the United States prepares for its presidential election on November 5, 2024, with Donald Trump and Kamala Harris dominating headlines, Wall Street is laser-focused on August 28th - NVIDIA's earnings day. Just as pollsters scrutinize every word from Trump and Harris, analysts are dissecting NVIDIA's every move. The anticipation surrounding this quarterly report matches that of election night, with potential to sway market sentiment and trigger significant moves across various sectors, potentially impacting portfolios as much as the next president might influence economic policy. Analyst projections have reached fever pitch. In a bullish frenzy, consensus estimates have surged in the past 48 hours alone. Revenue forecasts have jumped by $170 million, now targeting a colossal $28.65 billion. Similarly, net income projections have seen a significant upward revision of $120 million. These rapidly evolving forecasts underscore the immense weight the market is placing on NVIDIA's performance. The pressure is on for CEO Jensen Huang and his team to deliver results that not only meet but exceed these lofty expectations, making this earnings call a pivotal moment in the 2024 financial calendar, with implications for tech stocks, the Nasdaq, and even the S&P 500. 2. Insight into AI Industry Growth NVIDIA's earnings report serves as more than just a financial statement; it's a barometer for the entire AI industry. With the global AI market projected to grow from $196 billion in 2023 to over $250 billion in 2024, NVIDIA's performance offers a real-time glimpse into this explosive growth trajectory. As the dominant force in AI chips, NVIDIA's forward guidance is crucial for gauging AI spending trends across various sectors. From Apple's "Apple Intelligence" to Microsoft's OpenAI integrations, tech giants are betting big on AI. NVIDIA's outlook on chip demand could signal whether this AI gold rush is accelerating or facing headwinds. The recent surge in consensus estimates underscores the market's bullish expectations. With revenue forecasts jumping by $170 million in just 48 hours, analysts are pricing in continued robust growth. This upward revision isn't just about NVIDIA; it reflects optimism about the entire AI ecosystem. Moreover, NVIDIA's insights could shed light on emerging trends like AI's role in addressing global challenges or advancements in natural language processing. With 83% of companies claiming AI as a top priority, NVIDIA's report could influence investment decisions far beyond the tech sector, potentially impacting industries from healthcare to finance. In essence, NVIDIA's earnings call isn't just about one company's balance sheet; it's a pulse check on the AI revolution itself, offering valuable insights that could shape market strategies and investment flows across the entire tech landscape. 3. Impact on the Entire AI Stock Sector NVIDIA's earnings report isn't just about one company - it's a bellwether for the entire AI industry. The ripple effects of NVIDIA's performance could be felt across a wide range of AI-related stocks and even beyond the tech sector. A strong showing from NVIDIA could fuel bullish sentiment for other AI players. For instance, Advanced Micro Devices AMD, NVIDIA's closest competitor in the AI chip space, could see its stock price affected. Similarly, companies like Broadcom AVGO and Super Micro Computer SMCI, which provide critical components and systems for AI infrastructure, might experience significant price movements based on NVIDIA's outlook. Conversely, any hint of a slowdown could send shockwaves through the industry. Cloud service providers like Amazon AMZN and Google GOOGL, which rely heavily on NVIDIA's GPUs for their AI and machine learning services, could see their AI growth projections reassessed by investors. The earnings call might also offer insights into key industry trends. For example, any commentary on the adoption of NVIDIA's latest Blackwell architecture could signal the pace of AI advancement across various industries. Similarly, updates on NVIDIA's partnerships, like its collaboration with ServiceNow on generative AI, could provide clues about the direction of enterprise AI adoption. Moreover, NVIDIA's performance could impact adjacent sectors. Semiconductor equipment manufacturers like Applied Materials (AMAT) and ASML Holding ASML might see increased investor interest if NVIDIA signals strong future demand. Even non-tech sectors like automotive, with companies such as Tesla TSLA heavily invested in AI for autonomous driving, could feel the effects of NVIDIA's report. As the AI job market continues to evolve, NVIDIA's outlook could even influence workforce trends. A positive forecast might accelerate hiring in AI-related fields, affecting everything from university enrollments to corporate training programs. In essence, this earnings report isn't just about numbers - it's a crystal ball for the future of AI, with implications that extend far beyond NVIDIA's balance sheet, potentially reshaping investment strategies across multiple sectors. While NVIDIA's earnings report will undoubtedly send ripples through the AI stock sector, its influence extends far beyond just AI-focused companies. In fact, NVIDIA's performance has the potential to move the entire S&P 500, underscoring the company's outsized role in the broader market. 4. Potential To Move The Entire S&P 500 NVIDIA's earnings report isn't just a tech sector event - it has the potential to move the entire S&P 500 index. The concentration of market returns in a handful of tech giants has reached unprecedented levels, with NVIDIA leading the charge. As of June 2024, NVIDIA had already contributed a staggering 33% of the S&P 500 Index's year-to-date return. This outsized influence means that NVIDIA's performance can cause substantial movements in the overall index. To put this in perspective, if NVIDIA were to lose its gains from earlier in the year, it could potentially drag the S&P 500 down by approximately 4.5%. The tech sector's dominance in the S&P 500 has reached historic levels. By late June 2024, only 27% of stocks in the S&P 500 were outperforming the index - the lowest reading on record in over 50 years. The top 10 contributors accounted for a whopping 70% of the S&P 500's 18% year-to-date return. NVIDIA's market cap, now exceeding $3 trillion, places it among the stock market's most massive companies. This means that even small percentage moves in NVIDIA's stock can translate to significant point changes in the S&P 500. The concentration of returns in NVIDIA and other tech giants has created a unique market dynamic. The S&P 500 can now fall even on days when the majority of stocks are rising, due to the outsized impact of these few companies. This phenomenon has portfolio managers on edge, as not being invested in these top-performing tech stocks can significantly impact overall returns. As Wall Street holds its breath for NVIDIA's earnings report, it's clear that the stakes extend far beyond the tech sector. The entire market is poised to react, underscoring NVIDIA's role not just as a tech leader, but as a key driver of overall market performance. Whether bullish or bearish, NVIDIA's results could set the tone for the broader market in the coming months. 5. Spotlight On Key AI Players As we approach NVIDIA's earnings report, it's crucial to understand how other key players in the AI space have been performing. This context will help gauge the potential ripple effects of NVIDIA's results: Super Micro Computer has had a stellar year, with a year-to-date increase of 116% in 2024. Meta Platforms has shown remarkable growth, with its stock price gaining 79% over the past 12 months. Microsoft and ServiceNow NOW have seen significant increases of 70% and 109% respectively since January 2023. Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL) have also shown positive momentum in recent months. NVIDIA's earnings report could either reinforce or challenge the bullish sentiment surrounding these stocks. A strong report from NVIDIA might further fuel the AI boom, potentially boosting these companies. Conversely, any signs of slowdown could prompt a reassessment of the entire AI sector's valuation." This approach ties together the performance of various AI-related stocks and sets up the potential impact of NVIDIA's earnings report on the broader AI market. Economic Context and Market Outlook As NVIDIA's earnings report looms, it's crucial to consider the broader economic landscape being a part of a stock market community would have potentially made it easier to understand Federal Reserve Chair Jerome Powell's recent comments at Jackson Hole have added another layer of anticipation to an already charged market environment. Powell's statement that "the time has come for policy to adjust" signals a potential shift towards rate cuts, a move that could have far-reaching implications for the tech sector and NVIDIA. The Fed's pivot towards a more dovish stance suggests growing confidence in a soft economic landing. This optimism, coupled with a resilient labor market, creates a favorable backdrop for companies to maintain or even increase their capital expenditures. In the context of AI, this could translate into sustained or accelerated spending on infrastructure and technologies that form the backbone of AI development and deployment. For NVIDIA, this economic outlook could be a double-edged sword. On one hand, lower interest rates typically boost growth stocks, potentially fueling further gains for NVIDIA and its AI-focused peers. On the other hand, the company will need to justify its lofty valuation with continued strong performance and forward-looking guidance that aligns with this optimistic economic narrative. The relationship between a strong economy and increased capital expenditures is particularly pertinent for the AI sector. As companies feel more confident about the economic outlook, they may be more inclined to invest heavily in AI technologies to gain a competitive edge. This could lead to a surge in demand for NVIDIA's products, from GPUs to specialized AI chips and systems. In essence, NVIDIA's earnings report will not just reflect the company's performance, but a litmus test for the entire AI industry's growth trajectory in the context of a potentially more accommodative monetary policy. As investors parse through NVIDIA's numbers and forward guidance, they'll be looking for signs that the company can capitalize on this favorable economic backdrop and continue to drive the AI revolution forward. The tech sector, and NVIDIA in particular, stands at a pivotal juncture. A strong earnings report, coupled with positive forward guidance, could cement NVIDIA's position as a cornerstone of the AI boom and provide a strong tailwind for the broader tech sector. Conversely, any hints of caution or slowdown could prompt a reassessment of the AI growth narrative. As Wall Street holds its breath for NVIDIA's announcement, one thing is clear: the implications of this earnings report extend far beyond a single company's balance sheet. It's a moment that could define the trajectory of AI investments, shape market sentiment, and potentially influence the pace of technological innovation in the coming years. Market News and Data brought to you by Benzinga APIs