Despite the recent rally in tech stocks, mega-cap names like Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) have seen their shares decline over the past month as investors question the viability of the AI space.
Shares of Google parent Alphabet Inc. fell 14%, while Amazon shares fell about 8%. Microsoft shares fell more than 7% at the close on Thursday. But Nvidia’s earnings, due later this month, could be the next big catalyst for big tech companies and the AI business in general.
Dan Hawley of Yahoo Finance says:
The chip company’s performance could upend the AI business more than any other. Unlike software companies, revenue has not been a problem for Nvidia. But if it falls short of Wall Street’s already high expectations, it could drag AI down with it.
Alphabet, Amazon and Microsoft’s AI spending may be putting off investors, but it’s helping Nvidia’s bottom line. The company’s Hopper AI chips are the hottest on the market, and the company is set to start ramping up production of its Blackwell line later this year.
The company controls 80% to 95% of the high-power AI chip market, According to ReutersThis means that every time a company says it’s spending on AI capabilities, it’s likely buying, or at least using, Nvidia processors.
But Nvidia’s second-quarter report also marks the beginning of what will be many quarters of difficult year-over-year revenue growth comparisons. Q2 2024 Revenue Data center revenue was $13.5 billion, up 101% year over year. Data center revenue topped $10.3 billion, up 141%.
Each subsequent quarter has seen impressive annual gains for the chip giant. But the party won’t last forever. In its most recent quarter, Nvidia reported revenue of $26 billion, up 262% from the $7.19 billion the company reported a year earlier.
Wall Street analysts expect the company to report revenue of $28.6 billion in its upcoming second-quarter report, up 112% year over year. While that represents a huge increase in revenue, it’s not as impressive as the growth the company has seen in previous quarters. That could put some investors off.
But that doesn’t mean Nvidia can’t keep making money, or that Wall Street doesn’t trust the company. As of Thursday, 66 analysts had given Nvidia stock a buy rating. Only seven had a hold rating, and just one had a sell rating.
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