Nvidia (NVDA) is set to report its Fiscal Q2 results at the end of August, and in this piece, I’ll explain why I am bullish on the stock ahead of its earnings. The AI darling recently experienced a drop due to overly high expectations for AI companies amid macroeconomic headwinds. Nevertheless, earnings reports from large-cap tech companies this season have confirmed that demand for Nvidia’s GPUs remains strong, with its market dominance likely intact. Therefore,Nvidia is positioned to exceed its previous guidance and likely deliver strong projections for the second half of the year.
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Wall Street’s Confidence in Nvidia Remains Strong
In light of this, Wall Street’s confidence in Nvidia remains strong. The bullish thesis for Nvidia looks solid heading into its earnings report. On August 28, the market is expecting Nvidia to release its Fiscal second-quarter results. Analysts are forecasting an EPS of $0.64, up from $0.61 in the previous quarter. If Nvidia exceeds these expectations, it will mark the seventh consecutive quarter of surpassing forecasts.
Additionally, for revenue, Nvidia is projected to report $28.6 billion, which would be an increase from the $26 billion in the previous quarter. This figure is $600 million above Nvidia’s mid-point guidance for FQ2. Furthermore, Nvidia has guided that gross margins should fall between 74.8% and 75.5%.
Despite these optimistic projections, the consensus estimates for FQ2 show a remarkable 137% increase in EPS and a 111% increase in sales year-over-year. This impressive growth highlights strong market confidence, with 38 out of 40 analysts raising their EPS estimates and 37 out of 39 revising their revenue estimates upwards. Consequently, the general consensus among Wall Street analysts for Nvidia remains highly bullish. With a “Strong Buy” rating, the average NVDA price target is $144.17, suggesting a potential upside of 33.89% from the most recent share price.
Why Nvidia’s Fiscal Q2 Will Likely Be Another Strong One
Given these factors, while Wall Street remains bullish, I also expect Nvidia’s Fiscal Q2 results to be strong, based on recent trends and earnings season reports.
To start with, Nvidia continues to dominate the GPU market, and investment in AI remains robust. Advanced Micro Devices (AMD), Nvidia’s closest competitor, recently reported its June quarter results. While AMD made significant strides in data centers and GPUs, it hasn’t shown that it will capture substantial market share from Nvidia through 2025. This is a concern for Nvidia investors, but recent data shows Nvidia is holding strong, maintaining about 88% of the GPU market share last quarter.
Moreover, Taiwan Semiconductor Manufacturing Company (TSM), which produces most of the chips worldwide, including Nvidia’s data center GPUs, reported a 33% increase in July revenue year-over-year and a 10% monthly rise. This bullish sentiment for the AI space indicates that TSMC is receiving more orders, suggesting that Nvidia is also ramping up its chip purchases.
In addition, big tech giants have also hinted at strong AI growth. For instance, Tesla (TSLA) recently mentioned in its conference call that it’s pursuing all aspects of the AI robotics stack, signaling a significant investment in AI and data centers—areas heavily supported by Nvidia GPUs. Furthermore, Nvidia’s GPUs, including the H100 with its Hopper architecture, are critical for training large language models (LLMs). These GPUs continue to attract interest from major tech companies. For example, Meta Platforms’s (META) Llama 3 gaining momentum and OpenAI’s GPT-4 models are being trained using Nvidia GPUs like the A100.
All things considered, the strong performance of Nvidia’s competitors, positive data from TSMC, and growing adoption of Nvidia’s GPUs by major tech players all point to a robust Fiscal Q2 for Nvidia.
What Could Undermine NVDA’s Bullish Outlook
However, despite the positives surrounding Nvidia’s Fiscal Q2, there are some concerns that could impact the stock price.
Specifically, one of the key focuses this quarter will be AI-driven demand, particularly in Nvidia’s Data Center segment. Investors will closely scrutinize the demand for GPUs like the A100 and H100. If Nvidia demonstrates higher margins on AI-related products, it could signal strong demand and pricing power, which would be bullish. Conversely, failing to achieve this could spell trouble.
Additionally, guidance for the upcoming quarters will be another major point of interest. This has been a weak spot for some AI giants during the earnings season, so any positive commentary on sustained or increased demand for AI and data center products will be important.
For bears, any slippage in these areas could further drive negative sentiment. With Nvidia’s stock price significantly rising in recent years, investors might be wary, especially given the current forward P/E ratio of 38.5x. This high valuation is largely based on an impressive EPS growth rate of 110% for the period ending January 2025. Thus, any failure to meet these high expectations could lead to bearish pressure.
Why NVDA Could Be a Smart Move Now
Despite these concerns, Nvidia’s bullish thesis has faced a tough test, as the stock recently experienced a dramatic drop, losing $1 trillion in market cap over five weeks—essentially the value of Tesla. This decline from a June high of over $135 per share reflects market sentiment more than Nvidia’s fundamentals, raising questions about the company’s current phase.
Nevertheless, some investors believe Nvidia is still in its hypergrowth phase, justifying its high valuations and supporting potential price increases. However, with a 2,500% surge over the past five years, concerns of a bubble persist if the company has a disappointing quarter.
Given this context, focusing specifically on long-term moving averages helps gauge momentum. With Nvidia’s stock showing high volatility at 49% annually, monitoring moving averages is particularly important. If the stock is above the 200-day moving average, it might signal a sell. If it is below, it could indicate a buying opportunity. Currently, with the 200-day moving average at $81.42 and the stock price below $105 levels, this suggests a potential buying moment.
Key Takeaways
To conclude, Nvidia’s commanding market position, robust demand for AI-driven GPUs, and unwavering confidence from Wall Street analysts all point to a strong performance in FQ2. While short-term volatility may arise from cautious guidance, the long-term outlook for Nvidia remains highly promising, making it a compelling investment opportunity at this stage. If Nvidia sustains its growth projections for the next few years, its current valuation appears de-risked.
