AI Giant Nvidia (NASDAQ: NVDA) Saudi Telecom Company (SABIC) is scheduled to announce its results for the second quarter of fiscal year 2025 (ending July 28, 2024) on Wednesday, August 28, after market close.
Nvidia’s upcoming earnings release is widely seen as the most anticipated of this quarterly earnings season, as the company is seen as a bellwether for the AI space and the market as a whole.
Nvidia Dominates the fast-growing AI chip marketIf it delivers stronger-than-expected results — especially in its AI-driven data center business — it suggests the company has a broad range of opportunities. artificial intelligence The market is likely to be stronger than widely believed.
Nvidia’s stock performance has also become an indicator of overall market strength. Nvidia is the second-largest stock on the exchange. Standard & Poor’s 500 Index (back) apple) It has seen a massive surge since early 2023, so it has been a big driver of the index’s overall performance.
My two-part prediction is (1) that Nvidia will beat Wall Street earnings estimates, and (2) that it will beat them by at least 10%. We will get to where the 10% came from.
NVIDIA Q2 Guidance and Wall Street Estimates
|
metric |
Q2 FY24 Result |
NVIDIA Q2 FY25 Guidance |
Nvidia’s expected growth |
Wall Street Estimates for Q2 FY25 |
Wall Street’s expected growth |
|---|---|---|---|---|---|
|
profit |
$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. Q2 FY25 ended July 28, 2024. *Reflects 10-for-1 stock split in June 2024. **Reflects 10-for-1 stock split; Author’s calculation based on metrics for which management has provided guidance.
Nvidia has a great track record of beating Wall Street earnings estimates, so the likelihood of that happening on Wednesday seems high.
How strong is this record?
Nvidia Earnings Hit or Miss Records
I’ve reviewed Nvidia’s quarterly results over the past four years, or 16 quarters. This data goes back to the second quarter of fiscal 2021, which ended in late July 2020. Here’s the summary.
|
a period |
Period description |
Earnings results* compared to Wall Street consensus estimates. |
Exceeded Profit Size (Average) |
Exceeded Profit Size (Range) |
|---|---|---|---|---|
|
The last reported quarters are 16. |
Full data set |
14/16 beats = 88% |
12% |
5% to 32% |
|
11 quarters, starting six quarters ago and working backwards |
Dataset period before generative AI is called out as a major growth driver |
9/11 beats = 82% |
8% |
5% to 14% |
|
Five quarters have recently been reported. |
The period when generative AI was a major driver of growth |
5/5 pulses = 100% |
18% |
10% to 32% |
Data source: Nvidia. Author’s calculations. *Earnings in adjusted earnings per share (EPS). AI = AI.
Let’s look at the five-quarter period where generative AI (the technology behind OpenAI’s ChatGPT and other chatbots) has been a major growth driver. Stock price movements are also included.
|
a fourth |
End of period |
Profit amount exceeded/(failed) |
Stock price change the day after earnings announcement |
|---|---|---|---|
|
First Quarter of Fiscal Year 2025 |
Late April 2024 |
10% |
9.3% |
|
Fourth Quarter of Fiscal Year 2024 |
Late January 2024 |
12% |
16.4% |
|
Third Quarter of Fiscal Year 2024 |
Late October 2023 |
19% |
(2.5%) |
|
Q2 FY24 |
Late July 2023 |
32% |
0.1% |
|
First Quarter of Fiscal Year 2024 |
Late April 2023 |
18% |
24.4% |
Data sources: Nvidia earnings reports, Yahoo! Finance, YCharts.
Key points:
-
Nvidia has beaten Wall Street earnings estimates every quarter since AI became a major growth driver.
-
Nvidia’s profits, on average, have become bigger in what we might call the era of generative AI.
Prediction: Nvidia will beat Wall Street earnings estimates by at least 10%
Last quarter, Nvidia beat Street earnings estimates by 10%. Over the past five quarters—the era of generative AI—the company’s earnings have generally fallen by 10% (most recent), 12%, 19%, 32%, and 18%. So I use the smallest earnings beat as my forecast. I use the smallest earnings beat, not the average, because of trends in the data, for example.
The bigger picture: Nvidia stock probably isn’t as expensive as it might seem
Since generative AI entered the scene, NVIDIA’s profits have been significantly higher (average 18%). I believe this trend will continue.
The data in this article weakens the argument that “Nvidia stock is overvalued because its forward price-to-earnings (P/E) ratio is X.” (The forward price-to-earnings ratio is 46.2, as of August 26.) The forward price-to-earnings ratio uses an estimate of earnings value, which is generally Wall Street’s estimate. These estimates are likely to be too low, inflating the forward price-to-earnings ratio.
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Beth McKenna The Motley Fool has positions in Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has Disclosure Policy.
Prediction: Nvidia will beat Wall Street earnings estimates by 10% or more on Wednesday Originally posted by The Motley Fool