All Eyes on Nvidia: Anticipating Earnings that Could Shape AI Stocks

On Wednesday, Nov. 20, the investment community will be focused on a pivotal event: Nvidia (NASDAQ: NVDA) is set to release its third-quarter earnings report. This isn’t just another report; it’s a significant marker for the health of the artificial intelligence market.

I’ve said this multiple times, but it bears repeating: Nvidia serves as a critical benchmark for AI’s overall health. A strong earnings report could lead to a stock surge that benefits the broader capital markets.

Let’s examine the stakes for Nvidia and why this upcoming earnings announcement is crucial. Also, I’ll provide insights from recent analyst price targets as we approach the report.

Analysts Show Confidence Ahead of Nvidia’s Earnings

Typically, equity research analysts use quarterly earnings reports to engage with company management and gauge the overall business environment, including key initiatives and operational challenges.

Following these assessments, investment banks often adjust their reports and price targets based on insights gleaned from analysts. While it’s not common for analysts to release updates just before earnings, exceptions do occur.

This week, analysts from Morgan Stanley and UBS raised their price targets for Nvidia to $160 and $185, respectively. This suggests potential growth of about 10% to 28%, based on closing prices as of Nov. 11.

Image source: Getty Images.

Key Aspects Investors Should Monitor

In traditional earnings reports, metrics like revenue, gross margin, and profit margins grab investors’ attention. However, Nvidia’s upcoming report stands out from the rest.

Recently, major tech companies have indicated increased investments in AI infrastructure. Analyst Dan Ives from Wedbush Securities estimates that AI-related capital expenditures may exceed $1 trillion in the coming years. This surge in spending could signal positive growth for Nvidia.

Investors will be keen to understand how these infrastructure investments might benefit Nvidia. This is where management’s financial guidance becomes crucial.

An essential topic during the earnings call will be Nvidia’s new Blackwell GPU launch. Morgan Stanley anticipates that Blackwell could generate at least $10 billion in sales this year, with CEO Jensen Huang hinting at robust demand surpassing supply.

Despite this promising outlook, Nvidia’s rumored decision to shift order flow away from Super Micro Computer due to ongoing challenges at the IT architecture firm raises some concerns.

Though I see the potential for Blackwell’s success, I remain cautiously optimistic. Any issues related to manufacturing could disrupt Nvidia’s upward trajectory in the near term.

Wise Words from Warren Buffett Resonate

Warren Buffett famously advised investors to be fearful when others are greedy and vice versa. Presently, it seems some investors might be overly enthusiastic about Nvidia. Here’s the timeline to illustrate my concerns:

• Nov. 30, 2022: OpenAI launched ChatGPT, and Nvidia’s stock has surged 758% since then.
• Last 12 months: Nvidia shares have risen by 205%.
• Year-to-date 2024: As of mid-November, Nvidia stock is up 198% this year.

I believe Nvidia’s stock is likely to rise after the earnings report, but my focus is on the long-term outlook rather than short-term gains. AI technology appears to be a lasting trend, and Nvidia will likely remain a key player.

However, considering the high price increases mentioned earlier, I find it hard to believe Nvidia stock could experience another dramatic surge. I view Nvidia more as a potential trade rather than a long-term hold at this point.

Taking all this into account, I feel it’s prudent to listen to Huang and the management team next week before deciding to adjust my Nvidia holdings.

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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.