Up 3x This Year, Will The AI Surge Drive Nvidia Stock Higher Following Q3 Earnings?

Nvidia (NASDAQ: NVDA) is anticipated to publish its Q3 FY’24 outcomes on November 21. We count on the corporate to have one other upbeat quarter, as know-how firms and builders have been scrambling to deploy generative AI into their functions, driving a windfall for Nvidia, whose high-end graphics processing chips stay the go-to merchandise for AI workloads. We count on Nvidia’s income to return in at $15.9 billion, marginally forward of the consensus estimates and about 2.6x above final 12 months’s quantity. Nevertheless, this may be barely beneath the corporate’s steerage of about $16 billion. We count on earnings to return in at roughly $3.21 per share, marginally forward of consensus estimates. So what ought to traders count on as Nvidia reviews its Q3 2024 outcomes? See our evaluation of Nvidia Earnings Preview for a more in-depth take a look at a number of the traits that would drive the corporate’s outcomes.

Within the present monetary backdrop, NVDA inventory has seen extraordinarily sturdy positive factors of 275% from ranges of $130 in early January 2021 to round $485 now, vs. a rise of about 20% for the S&P 500 over this roughly 3-year interval. Nevertheless, the rise in NVDA inventory has been removed from constant. Returns for the inventory have been 125% in 2021, -50% in 2022, and 231% in 2023.

As compared, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 15% in 2023 – indicating that NVDA underperformed the S&P in 2022. In reality, constantly beating the S&P 500 – in good occasions and dangerous – has been troublesome over current years for particular person shares; for different heavyweights within the Data Expertise sector together with AAPL, MSFT, and AVGO, and even for the megacap stars GOOG, TSLA, and AMZN.

In distinction, the Trefis High Quality Portfolio, with a set of 30 shares, has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares supplied higher returns with much less danger versus the benchmark index; much less of a roller-coaster experience as evident in HQ Portfolio performance metrics.

Given the present unsure macroeconomic surroundings with excessive oil costs and elevated rates of interest, may NVDA face an analogous state of affairs because it did in 2022 and underperform the S&P over the following 12 months – or will it see a powerful soar?

Demand for Nvidia’s high-end GPUs such because the A100 and H100 has surged pushed by demand from the generative AI area. Nvidia’s chips stay meaningfully forward of rivals similar to AMD and Google’s
GOOG
Tensor processing models. Furthermore, the corporate has been seeking to develop an ecosystem round its AI instruments, with its personal programming languages, and software program, that are serving to the corporate to lock in clients higher. Because of this clients who purchase into Nvidia’s GPUs will seemingly proceed to stay clients in the long term. Over the earlier quarter, Nvidia’s income greater than doubled year-over-year to $13.51 billion, beating its personal steerage of about $11 billion and issues are prone to decide up even additional over Q3 as provide seemingly improves. Nvidia stated that it had secured considerably bigger commitments from its suppliers to fulfill demand and has indicated that it expects provide to extend every quarter by means of subsequent 12 months. Furthermore, the broader semiconductor market seems to be lackluster with TSMC – Nvidia’s vendor and the world’s largest foundry participant – indicating that demand for almost all semiconductor product classes had weakened aside from AI chips. This might doubtlessly give foundry gamers extra room to scale up GPU output. Nvidia can be turning extremely worthwhile as a result of AI surge. Internet earnings rose over 5x in comparison with final 12 months to $6.7 billion, as gross margins rose to 71.2% from 45.9% within the year-ago quarter. The corporate has attributed the rise in margins to larger gross sales of advanced knowledge middle merchandise in addition to bundled software program.

Whereas we predict that Nvidia inventory may transfer a bit larger if it beats earnings, we predict the inventory is barely overvalued at present ranges, buying and selling at about 22x ahead gross sales. This compares to the broader semiconductor trade common price-to-sales a number of of about 4.5x. Even Tesla
TSLA
inventory didn’t commerce at P/S multiples of those ranges at its peak in 2020-2021. Though Nvidia stays in pole place in the marketplace for AI chips, competitors within the AI market may mount, with conventional chipmakers similar to Intel
INTC
and AMD doubtlessly inventing to catch up on this area given the excessive stakes. Furthermore, large tech gamers similar to Google are additionally doubling down on AI and machine learning-related silicon. We worth NVDA at about $410 per share, about 15% beneath the market value. See our evaluation on Nvidia Valuation: Is NVDA Inventory Costly Or Low cost? for extra particulars on what’s driving our value estimate for NVDA inventory.

Make investments with Trefis Market Beating Portfolios

See all Trefis Price Estimates