Can Nvidia earnings refuel the equity market rally? – Stock Markets
August 22, 2023 12:25 pm
Nvidia is set to unveil its financial results for the second quarter of 2023 on Wednesday, August 23, after Wall Street’s closing bell. The leading chipmaker is expected to post record earnings and revenue figures driven by the eruption of artificial intelligence (AI), which has massively increased demand for its high-tech chips. Can a solid performance from the AI darling erase the recent correction in US equity markets?
More than an earnings call
In its previous earnings report, Nvidia managed to top expectations by a wide margin, sending the broader stock market into overdrive and solidifying that AI is the next big growth lever within the tech sector. On Wednesday, the largest chipmaker in the world will report its Q2 financials amid a broader downside correction in US equity markets. Thus, investors will be laser-focused on both Nvidia’s performance and guidance to assess whether the 2023 stock market rally can extend.
Moreover, Nvidia’s figures are likely to be perceived as a proxy for the health of the tech sector through the demand for its chips, with many IT-related businesses starting to tighten their belts as the economy slows. Nevertheless, market participants are likely to pay more attention to management’s guidance regarding the growth trajectory and supply outlook as AI is considered the story of the next few years.
Key highlights
Nvidia is under pressure to deliver solid results due to a wide range of reasons. Firstly, as the AI-focused semiconductor industry is expanding exponentially, more and more businesses will try to steal market share. Hence, Nvidia should provide solid evidence that it has the capacity to meet increasing demand, otherwise many tech giants might quickly turn to its competitors.
On a positive front, the firm’s gaming arm is expected to record its first positive quarter in more than a year, indicating that the chipmaker’s growth is not solely attributed to the AI hype.
Bar set very high
Strong fundamentals are expected for Nvidia as more and more tech firms that have entered the AI race are in need of its advanced chips to cope up with competition.
The semiconductor designer is expected to post revenue of $11.22 billion for the second quarter of 2023 according to consensus estimates by Refinitiv IBES, which would represent year-on-year growth of 67.42%. Additionally, earnings per share (EPS) are estimated at $2.09, marking a massive 310% increase on an annual basis.
Asymmetric risks
Nvidia has worn the crown of the most expensive chipmaker for quite a long time, while its current valuation clearly reflects its dominant position within the AI spectrum. The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 45.2x. Thus, the stock is trading with a hefty premium both against major benchmarks and peers.
However, with financial estimates constantly getting revised higher and the share price posting consecutive all-time highs, it seems that any failure to meet chip demand or any signs of a slowdown in the AI sector might open the door for significant downside. Besides its own stock, Nvidia could drag the rest of the magnificent 7 clan lower as it is considered the AI sector’s growth engine.
New record highs in sight
From a technical perspective, Nvidia’s stock has experienced a massive surge since the beginning of the year, gaining more than 300% and posting consecutive multi-year highs. Despite the broader correction in equity markets, the best performing stock for the S&P 500 has managed to erase its pullback ahead of the upcoming earnings report.
Should earnings surprise to the upside, the bulls could attack the all-time high of $481.00. Surpassing that zone, the price would enter uncharted waters, where the $500.00 psychological mark could curb its upside.
Alternatively, a huge miss or disappointing guidance could send the price lower towards the $437.00 resistance zone, which overlaps with the 50-day simple moving average (SMA). A violation of that zone could set the stage for the August low of $403.00.
Nvidia is set to unveil its financial results for the second quarter of 2023 on Wednesday, August 23, after Wall Street’s closing bell. The leading chipmaker is expected to post record earnings and revenue figures driven by the eruption of artificial intelligence (AI), which has massively increased demand for its high-tech chips. Can a solid performance from the AI darling erase the recent correction in US equity markets?
More than an earnings call
In its previous earnings report, Nvidia managed to top expectations by a wide margin, sending the broader stock market into overdrive and solidifying that AI is the next big growth lever within the tech sector. On Wednesday, the largest chipmaker in the world will report its Q2 financials amid a broader downside correction in US equity markets. Thus, investors will be laser-focused on both Nvidia’s performance and guidance to assess whether the 2023 stock market rally can extend.
Moreover, Nvidia’s figures are likely to be perceived as a proxy for the health of the tech sector through the demand for its chips, with many IT-related businesses starting to tighten their belts as the economy slows. Nevertheless, market participants are likely to pay more attention to management’s guidance regarding the growth trajectory and supply outlook as AI is considered the story of the next few years.
Key highlights
Nvidia is under pressure to deliver solid results due to a wide range of reasons. Firstly, as the AI-focused semiconductor industry is expanding exponentially, more and more businesses will try to steal market share. Hence, Nvidia should provide solid evidence that it has the capacity to meet increasing demand, otherwise many tech giants might quickly turn to its competitors.
On a positive front, the firm’s gaming arm is expected to record its first positive quarter in more than a year, indicating that the chipmaker’s growth is not solely attributed to the AI hype.
Bar set very high
Strong fundamentals are expected for Nvidia as more and more tech firms that have entered the AI race are in need of its advanced chips to cope up with competition.
The semiconductor designer is expected to post revenue of $11.22 billion for the second quarter of 2023 according to consensus estimates by Refinitiv IBES, which would represent year-on-year growth of 67.42%. Additionally, earnings per share (EPS) are estimated at $2.09, marking a massive 310% increase on an annual basis.
Asymmetric risks
Nvidia has worn the crown of the most expensive chipmaker for quite a long time, while its current valuation clearly reflects its dominant position within the AI spectrum. The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 45.2x. Thus, the stock is trading with a hefty premium both against major benchmarks and peers.
However, with financial estimates constantly getting revised higher and the share price posting consecutive all-time highs, it seems that any failure to meet chip demand or any signs of a slowdown in the AI sector might open the door for significant downside. Besides its own stock, Nvidia could drag the rest of the magnificent 7 clan lower as it is considered the AI sector’s growth engine.
New record highs in sight
From a technical perspective, Nvidia’s stock has experienced a massive surge since the beginning of the year, gaining more than 300% and posting consecutive multi-year highs. Despite the broader correction in equity markets, the best performing stock for the S&P 500 has managed to erase its pullback ahead of the upcoming earnings report.
Should earnings surprise to the upside, the bulls could attack the all-time high of $481.00. Surpassing that zone, the price would enter uncharted waters, where the $500.00 psychological mark could curb its upside.
Alternatively, a huge miss or disappointing guidance could send the price lower towards the $437.00 resistance zone, which overlaps with the 50-day simple moving average (SMA). A violation of that zone could set the stage for the August low of $403.00.
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