Nvidia (NVDA) Earnings are AI Trade Bellwether
Nvidia (NVDA) is the market focus today ahead of its afternoon earnings. Along with software names Salesforce (CRM) and Snowflake (SNOW), which will provide further insight into the SaaS-pocalypse, NVDA will need to satisfy investors around its growth and competitiveness. Demand from China will be especially scrutinized.
For the headline numbers, Zacks estimates EPS of $1.52, a 71% increase from $0.89 last year, and revenue of $65.6 billion, a 67% jump. Given its tremendous size, this continued growth pace is impressive. It could see a further boost if China comes in stronger than expected – though their sales disappointed in its last report in November. While Chinese companies have reportedly showed strong demand, the Chinese government is encouraging domestic companies to look elsewhere.
Nvidia has been able to hold the top spot because of their superior chips, and it jumped into the AI revolution with both feet. It became one of OpenAI’s biggest backers back when it was the darling of the sector and, much like NVDA, seemingly the unquestioned winner in the space. The two are still well entangled, with reported discussions that it could invest $30 billion – down from their previous (nonbinding) agreement for $100 billion in September, but nevertheless significant.
However, some of the calculus may be shifting. Anthropic has dominated headlines lately, helping trigger the software sell-off, and other rivals like xAI are making government deals. The U.S. took a major stake in rival Intel (INTC), and megacaps like Alphabet (GOOGL) are creating their own competitive chips. AMD (AMD) and Meta (META) just made a deal where Meta will buy billions of dollars’ worth of its chips, and take a stake in the company.
AI-native companies are beginning to diversify their supply chains, as well. For example, Anthropic does use Nvidia hardware, but it also bought $10 billion in custom Google chips from Broadcom (AVGO) last year. The increased competition, as well as scrutiny around AI capex spending – both the amount, and its circularity – could have an impact on Nvidia’s valuation.
The New York Times says Nvidia has a staggering 90% share of the data center AI chip market, so its dominance isn’t going away anytime soon. The billions being poured into new chip factories and production will take years to see fruition, as very few companies in the world make the machines required to create advanced semiconductors. Clearly, though, the market is a little on edge around the AI story, making this afternoon more unpredictable.
Technological revolutions broaden, and the first movers don’t always stay the winners forever. Nvidia’s massive share of the chip market may start to see erosion. To counter that, it will have to innovate technologically, shift pricing, or take other tactics the market will scrutinize.
It is also exposed to geopolitical risk, as it doesn’t manufacture its own chips, but routes them through Taiwan Semi (TSM). Tensions between the U.S. and China, or any moves by China towards Taiwan, would be significant. Nvidia is working on more U.S. manufacturing, but the Blackwell wafer they created here still has to be shipped to Taiwan to be integrated into the final semiconductor package.
Nvidia is large enough to move the whole market with it, so keep a close eye on the report. The stock is up 48% vs last year, but has moved sideways over the last few months, up only 3% year-to-date. The options market is looking for a +/- $10.50 move, or around 5.5%.
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