Nvidia is the world’s ‘most important stock’, weighing on Q2 earnings

for Nvidia The past two years have been a joyous ride for investors. But lately they’ve been on a roller coaster ride.

As the main beneficiary of artificial intelligence ProsperityNvidia’s market value has increased about 9 times since the end of 2022. But after hitting an all-time high in June, Briefly Nvidia, once the world’s most valuable public company, lost nearly 30% of its value in the next seven weeks, wiping out about $800 billion in market value.

Currently, the stock is on an upward trend, with its share price rising to about 6% of its historical high price.

The chipmaker reports quarterly results on Wednesday, and its stock price movement is top of mind on Wall Street. Any sign that demand for artificial intelligence is waning or that major cloud customers are tightening their belts modestly could lead to a sharp drop in revenue.

“This is the most important stock in the world right now,” said Eric Jackson of EMJ Capital. told CNBCof”Closing Bell“Last week. If they fail, that’s a big problem for the whole market. I think their stock prices will surprise to the upside.”

Nvidia’s report comes just weeks after earnings reports from big tech companies. The company’s name has been everywhere on analyst calls because Microsoft, letter, Yuan, Amazon and Tesla All have invested heavily in Nvidia’s graphics processing units (GPUs) to train AI models and run a wide range of workloads.

Nvidia’s revenue has more than tripled year-over-year over the past three quarters, with the vast majority of that growth coming from its data center business.

Analysts expect the industry to post a fourth consecutive quarter of triple-digit growth, but the pace of growth will slow to 112% to $28.7 billion, the London Stock Exchange said. Year-on-year comparisons will become more difficult from now on, with growth expected to slow over the next six quarters.

Investors will be particularly focused on Nvidia’s forecast for the October quarter. The company expects revenue to grow about 75% to $31.7 billion. Upbeat guidance would suggest Nvidia’s deep-pocketed customers are signaling they’re willing to keep spending on AI, while a disappointing forecast could stoke concerns about a bubble in infrastructure spending.

Goldman Sachs analysts recommend buying the stock, writing in a note last month: “Investors often question the sustainability of the current capex trajectory given the massive growth in hyperscale capex over the past 18 months and the strong near-term outlook.”

Much of the optimism ahead of the report — the stock is up nearly 10% in August — stemmed from comments from top customers that they continue to spend big on data centers and Nvidia-based infrastructure. On Tuesday, the stock rose 1.5% to $128.30.

Last month, the CEOs of Google and Meta Warm support Former Google CEO Eric Schmidt recently said that underinvesting is a greater risk than spending too much. Tell students In a since-deleted Stanford University video, he said he heard from top tech companies that “they need $20 billion, $50 billion, $100 billion” worth of processors.

But even as Nvidia’s profit margins have expanded in recent years, the company still faces questions about the long-term return on investment from customers buying these machines, which cost tens of thousands of dollars and are ordered in bulk.

During Nvidia’s last earnings call in May, CFO Colette Kress Providing data points This suggests that cloud providers, which account for more than 40% of Nvidia’s revenue, generated $5 in revenue for every $1 spent on Nvidia chips over four years.

There may be more of that data to come. Last month, Goldman Sachs analysts wrote after meeting with Kress that the company will release more return-on-investment metrics this quarter “to increase investor confidence.”

Another major issue facing Nvidia is the timeline for its next-generation AI chip, Blackwell. Reported Earlier this month, the company announced it was facing production issues that could delay volume shipments until the first quarter of 2025. Nvidia said at the time that production was expected to ramp up in the second half of this year.

The move comes after Nvidia CEO Jensen Huang said in May that the company would receive “substantial” revenue from Blackwell this fiscal year, a move that surprised investors and analysts.

While Nvidia’s current generation chip, Hopper, remains the preferred choice for deploying AI applications such as ChatGPT, Advanced Micro DevicesGoogle, and a handful of startups, putting pressure on Nvidia to maintain its performance lead amid a flat upgrade cycle.

Even with the potential for Blackwell delivery delays, that revenue could be pushed back to the next quarter while boosting current Hopper sales, especially the newer H200 chip. The first Hopper chips are set to go into full production in September 2022.

“The timing of the shift is immaterial as supply and customer demand have already rapidly shifted toward H200,” Morgan Stanley analysts wrote in a note this week.

Many of Nvidia’s major customers say they need the extra processing power of the Blackwell chips to train more advanced, next-generation AI models. But they’ll take what they can get.

“We expect Nvidia to reduce Blackwell B100/B200 GPU deployment in the second half of the year and increase investment in Hopper H200,” HSBC analyst Frank Lee wrote in an August report. He has a buy rating on the stock.

Correction: Colette Kress is Nvidia’s chief financial officer. An earlier version misspelled her name.