Nvidia Stock Poised for Potential Surge Ahead of August 28 Earnings Report

Should You Buy Nvidia Stock Before Aug. 28? | The Motley Fool

It's been yet another exciting earnings season for investors as megacap tech companies proved that the artificial intelligence (AI) train is moving full steam ahead. One AI player in particular is yet to publish financial results for the second quarter. On Aug. 28, semiconductor specialist Nvidia (NVDA 0.98%) will report earnings, and you can bet that bulls and bears all across Wall Street will be focusing on every last number the company produces. Let's dive into what investors should look for and assess if now is a good time to buy shares of Nvidia. Nvidia reports revenue in five categories: data centers, gaming, professional visualization, automotive, and original equipment manufacturing (OEM). Each segment is connected to AI in some form or fashion, but the overwhelming majority of Nvidia's business stems from data centers. During the company's first quarter of fiscal 2025 (ended April 28), total revenue was $26 billion. Nearly 87% of that, or $22.7 billion, came from the data center business. According to consensus analyst estimates, Wall Street is forecasting that second-quarter sales will be around $28.5 billion. Should Nvidia achieve this target, it would represent 111% growth year over year. In the section below, I'll break down why I think Nvidia might blow away these estimates and explain some of that tailwinds that could be lifting its important data center operation. It's obvious that a common thread stitching the overall fabric of megacap tech right now is AI. But at a more granular level, AI's integration with cloud computing is a big movement within the technology industry at large. The cloud computing landscape is dominated by Amazon, Microsoft, and Alphabet. During the second quarter, each of these "Magnificent Seven" members revealed some interesting features. Namely, each is aggressively increasing investments in capital expenditures (capex). In the case of Amazon, the company's big initiative is an $11 billion investment into data centers in Indiana as part of a broader rollout to develop its own AI-powered chips. As for Microsoft, the company hasn't been shy about new investments in nuclear-powered data centers as the company seeks to double down on AI infrastructure in an energy efficient way. During Alphabet's second-quarter earnings call, chief financial officer Ruth Porat said that capex spending was "driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers." Do you see the theme? All of Nvidia's cohorts are investing tens of billions of dollars into data center infrastructure, and the trends in the chart above suggest it won't be slowing down anytime soon. Considering the bulk of Nvidia's revenue and profits comes from data center services and the company's sophisticated graphics processing units (GPU), I see the rising capex patterns from others in big tech as a good proxy for what's to come for Nvidia. AI emerged as the hottest ticket in the tech realm toward the end of 2022 when OpenAI released ChatGPT. In the chart below, you can see how Nvidia stock reacted following a series of earnings reports since the beginning of last year. The earnings report dates are annotated by the purple circles with "E" in the middle. It's clear that Nvidia stock has risen considerably over the last 20 months or so. More specifically, the stock rarely dropped immediately following an earnings report, and when it did, the sell-off was brief. To me, this helps validate that buying Nvidia stock either before or after its last several earnings reports ended in the same result: gains. When it comes to valuation, Nvidia stock is less expensive today than it was a year ago on both a price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) basis. This compression in multiples has occurred because the company's profits and cash flow are actually rising faster than its sales, a sign of an incredibly healthy and powerful operation. Given the trends from its Magnificent Seven peers noted above, I'm cautiously optimistic that Nvidia could experience yet another impressive quarter. For these reasons, it might be a good idea to buy some shares now because history suggests Nvidia stock could be headed for further gains. But I wouldn't get too caught up in the exact timing. If you prefer to analyze the earnings report first and then decide to buy the stock, perhaps you'll be investing at a slightly higher valuation. Given the trends in the earnings chart, I'm confident that gains will still be on the horizon for long-term investors whether or not they buy Nvidia stock before Aug. 28.

Aug. 28 Could Be a Massive Day for Nvidia Stock. Is It a Buy Right Now? | The Motley Fool

Nvidia's stock has tended to pop after its quarterly earnings are announced. Nvidia (NVDA 0.98%) has been one of the hottest artificial intelligence (AI) stocks on the market, and for good reason. It has put up incredible growth numbers quarter after quarter lately, and each time, the stock has popped following those reports. With Nvidia's second-quarter FY 2025 results being announced on Aug. 28 after the markets close, investors may want to consider buying Nvidia stock before that date. However, these results may differ from some of its previous announcements, as year-over-year comparisons are becoming more difficult. Nvidia's rise is tied to its primary product: graphics processing units (GPUs). GPUs were developed by Nvidia back in the '90s as devices that could process gaming graphics more efficiently than a CPU. While GPUs excelled in this field, other uses were quickly developed for them. Because a GPU can process multiple calculations in parallel, it is useful for calculation-intensive tasks like engineering simulations, drug discovery, and AI model training. The latter has caused its business to explode, and we'll get a checkup on demand next week when the company releases its most recent quarterly results. For Q2, management told investors to expect $28 billion in revenue. Compared to last year's Q2 sales of $13.5 billion, that represents 107% year over year growth. That would be an impressive jump, but would represent a growth rate slowdown compared to previous quarters. This slowdown is occurring because we are overlapping the period when AI demand really started to take off. Still, I wouldn't consider a doubling of revenue a disappointment. Additionally, don't be surprised if Nvidia beats that target. It has consistently outperformed its guidance over the past year, and Wall Street analysts are starting to catch on to this trend. From an average of 40 analysts, they collectively think Nviida's Q2 revenue will be $28.5 billion. While year-over-year revenue growth is an important stat, there are others that I think are more important to consider, with margin at the top of that list. Nvidia's revenue growth has been nothing short of incredible, but its margin expansion has been even more impressive. With a gross margin near 80% and a profit margin approaching 60%, Nvidia has become one of the most profitable companies ever to trade on the public markets. When the Q2 report comes out, I'll be looking to see if the company has maintained or expanded these elevated levels. If investors see weakness in these margins, it's a sign that Nvidia is facing increased competition and needed to adjust the price of its GPUs to stay competitive in the market. I don't expect a margin drop, but if one does occur, don't be surprised if the stock gets slammed immediately after the release of information. With Nvidia expected to report another strong quarter, many investors may wonder if they should invest now, before the report. Investors should first consider that investing success hardly ever comes from trying to time the market and jump in and out at just the right time. They should also consider how expensive the stock is, trading at nearly 46 times forward earnings estimates. The stock has a lot of growth baked into it, and Nvidia will need to report a strong Q2 and give impressive Q3 guidance to justify the optimism. For many investors (including myself), the price is too high. But for others, it may still represent a buying opportunity. At this valuation, Nvidia needs to report another year or two of flawless quarters; otherwise, it could be knocked from its perch. If you believe it can do that, Nvidia's stock could still be interesting here. But with its history of reporting strong earnings, and being rewarded by investors for doing so, if you're ready to be a buyer, you might want to buy before Aug. 28.