NVDA Earnings Preview: Can NVIDIA’s Q2 Results Maintain the Chip Giant’s Growth Streak?

High Expectations for Nvidia‘s Q2 Fiscal Results

Nvidia‘s Growth Potential in the AI Wave

Chip giant Nvidia has been making waves in the market, with its shares skyrocketing over 221% since the beginning of the year. As one of the biggest beneficiaries of the generative artificial intelligence (AI) wave, the company’s advanced chips and technology have garnered attention and positive reviews from Wall Street analysts.

The Solid Demand for Nvidia‘s Data Center Products

Nvidia‘s blockbuster fiscal first-quarter earnings report in May led to a surge in the stock’s value, as the company provided guidance for its second quarter with revenue expectations of $11 billion, significantly higher than analysts’ consensus estimate. This optimistic outlook was largely driven by the solid demand for Nvidia‘s data center family of products.

Nvidia‘s advanced graphics processing units (GPUs) are crucial for powering cloud computing and generative AI applications. As the demand for these technologies continues to grow, the company is well-positioned to capture lucrative market opportunities.

Analysts’ Optimism and Price Targets

Several Wall Street analysts have expressed optimism about Nvidia‘s future performance and raised their price targets for the stock. HSBC analyst Frank Lee increased his price target to $780 from $600, stating that the company’s earnings upside potential is still not fully accounted for in the current stock price. He expects continued bullish AI server momentum to surprise on the upside.

Similarly, CFRA analyst Angelo Zino raised the price target to $500 from $480, citing the company’s AI prospects as the driving factor for his higher price target. Zino expects Nvidia‘s second-quarter revenue to be driven by a greater appetite for GPUs in the data center space, reflecting strong orders from cloud providers and pricing power for the company’s H100 chips. He also anticipates a return to year-over-year revenue growth in the gaming segment after four quarters of declines.

Raymond James analyst Srini Pajjuri also increased his price target to $500 from $450, emphasizing the impact of GPU demand outpacing supply due to the AI spending boom. He believes that a more modest beat-and-raise report relative to last quarter, along with the expectation of visibility extending into 2024, will further drive the rise in Nvidia‘s stock.

Is Nvidia a Buy or Hold?

With high expectations for Nvidia‘s second-quarter results, Wall Street remains highly bullish on the stock, with a Strong Buy consensus rating based on 32 Buy ratings and two Hold ratings. The average price target of $532.98 suggests a potential upside of 13.5%.

Insights from Options Trading Activity

Options traders are pricing in a 10.9% move on Nvidia‘s earnings announcement. Historically, the stock has averaged a 6.3% move in the past eight quarters. Notably, after the first-quarter results, the stock rose 24.4%. The anticipated move is calculated by examining the at-the-money straddle of the closest-to-expiration options after the earnings announcement.

Conclusion

Investors and analysts have high expectations for Nvidia‘s second-quarter results, driven by the growing demand for its AI chips. However, failure to meet market expectations or lackluster guidance could lead to a decline in the stock’s value. Despite the positive outlook, investors should approach Nvidia with caution and consider the risks associated with the constantly evolving tech industry.