"Sales and Operating Profit Expected to Double"
Concerns Over Economic Recession Ease and Monetary Policy Uncertainty Resolved
Expectations for Nvidia Stock Price Increase
Jackson Hole is over. Now it's Nvidia's earnings. The earnings announcement of Nvidia, the AI leader, which is just three days away, is expected to be a 'litmus test' that will influence the global stock market trend. Amid another wave of rosy forecasts on Wall Street, if the results fall short of expectations, it could lead to a resurgence of AI bubble concerns. Currently, the New York Stock Exchange is once again approaching an all-time high, buoyed by the September rate cut hints confirmed at last week's Jackson Hole.
Nvidia, which accounts for more than 80% of the global AI chip market, will release its fiscal year 2025 Q2 (May-July) earnings and future guidance after the New York market closes on the 28th (local time). According to Yahoo Finance and others, Nvidia's Q2 revenue is expected to grow 112% year-over-year. Although this is a slowdown compared to the consecutive 260%+ revenue growth rates recorded in the previous two quarters, strong results exceeding guidance are still anticipated.
Arin Chikri, an equity analyst at Hargreaves Lansdown, predicted, "Nvidia's Q2 revenue and operating profit will both more than double, reaching $28.6 billion and $18.7 billion, respectively." This surpasses Nvidia's previously provided Q2 revenue guidance of $28 billion. Nvidia has posted earnings surprises for seven consecutive quarters since Q3 of fiscal year 2023.
In particular, Nvidia's earnings announcement is considered even more important as it serves as a litmus test not just for a single company but for the sustainability of the AI boom currently driving the stock market. This is why investors are focusing more on the Q3 guidance Nvidia will provide alongside revenue and operating profit figures. Mike Smith, portfolio manager at Allspring Global Investments, described Nvidia as "the zeitgeist stock representing our era today," adding, "Their earnings announcements are like the Super Bowl held four times a year."
The Nvidia-driven AI rally is identified as one of the factors moving the stock market. So far this year, Nvidia's stock price has risen about 161% (as of the close on the 23rd), accounting for roughly a quarter of the S&P 500 index's gains during the same period. Wedbush analyst Dan Ives called Nvidia "the heart and lungs of the AI market," emphasizing the impact of Nvidia's chip demand on the overall AI rally. Earlier, in an investor memo, he analyzed that "for every dollar Nvidia spends on graphics processing unit (GPU) chips, there is an $8 to $10 multiplier effect across the IT industry."
Investors are closely watching for updates on the next-generation AI chip 'Blackwell,' whose release has been delayed, in this earnings announcement. Goldman Sachs and Citigroup maintained their 'buy' ratings on Nvidia, stating that Blackwell-related news would reassure investors and boost the stock price.
Accordingly, expectations for Nvidia-driven stock price gains are pouring in from both inside and outside Wall Street. According to options analytics firm Orats, investors expect Nvidia's stock to surge about 10.3% the day after the earnings announcement. This is much higher than the expected gains before Nvidia's earnings announcements over the past three years and the average post-earnings day increase (8.1%) during the same period. Bank of America (BoA) evaluated, "Nvidia's earnings will be a major catalyst to close out this summer." Moreover, concerns about recession and monetary policy uncertainty that shook the U.S. stock market earlier this month through economic data releases and Federal Reserve Chair Jerome Powell's Jackson Hole speech have also significantly eased.
On the other hand, some concerns have been raised that these earnings expectations could instead weigh on the stock price. Furthermore, this earnings announcement comes ahead of September, a historically volatile month for the market. According to data from investment research firm CFRA, examining the average monthly returns of the S&P 500 index since World War II shows that September (-0.78%) has been the lowest among the 12 months.
Matt Sturkey, senior portfolio manager of equities at Northwestern Mutual Wealth Management, pointed out, "The biggest thing investors want to know from Nvidia's earnings announcement is sustainability and how demand will look this year and next." This week, besides Nvidia, earnings announcements are scheduled from Dell, Lululemon, Salesforce, and Best Buy. Ulta Beauty, newly invested in by Warren Buffett-led Berkshire Hathaway, will also release its earnings this week.
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