Nvidia Q3 earnings 🕤 What to expect in report? 📊

Today, after the session on Wall Street, Nvidia (NVDA.US) will present its results for the third quarter of the year. Investors will pay close attention not only to the quarterly dynamics, which have literally blown away analysts' expectations recently, but especially to the outlook for the next quarter. The company is responsible for producing the most powerful AI chips, used to increase the computing power of artificial intelligence models, in data centers. With this in mind, Wall Street may look at Nvidia's reports as a benchmark for interest around AI. As a result, the report could have a significant impact on the Nasdaq 100 index as a whole, which has recently climbed to levels not seen since early 2022. 

Revenue: $16.1 billion vs. $13.5 billion in Q2 and $5.93 billion in Q3 2022 and 

Earnings per share (EPS): $3.36 vs. $2.7 in Q2 and $0.58 in Q3 2022

• Data center revenue: $12.82 billion vs. $10.32 billion in Q2 and $3.83 billion in Q3 2022
• Gaming revenues: $2.7 billion vs. $1.57 billion in Q3 2022

Wall Street expects fourth-quarter revenue guidance of $17.8 billion, which would indicate a nearly 10% quarter-over-quarter growth rate. In Q2, the company surprised with nearly 80% quarter-on-quarter revenue growth (nearly 22% above forecasts) and 30% higher earnings per share. If such impressive dynamics were to be maintained today as well, we can expect to exceed analysts' forecasts, who expect revenues and earnings slightly above the middle range against the company's own estimates. Nvidia indicated in Q2 that it expects revenues between $15.68 and $16.32 billion in Q3.

US - China sanctions won't stop Nvida growth?

Bank of America pointed to positive trends on the seasonal side in Q4 that are particularly supportive of results from the gaming sector, and expect the company to beat forecasts and raise its demand forecast for the next quarter. However, since the company does not go beyond the next quarter in its financial forecasts, investors will also be listening for the tone in which Nvidia CEO Jens Huang will speak tomorrow on a conference call with analysts. A major issue recently has been potential trade blockades related to the Chinese market, but here too Wall Street expects a limited impact. Especially since, at this point, demand for AI chips still outstrips supply.

• Such a scenario is priced as likely by Stifel analysts, who stressed that demand from large cloud providers in the US market, Europe, Japan and South Korea is high enough and creates a favorable base for the company's growth.
• According to press reports, the company has found a way and is continuing to sell chips to China, in accordance with US regulations. Last week, Chinese media outlets including Cailian Press indicated that Nvidia will supply Chinese manufacturers with three new chips, based on the H100 GPU.
• Previously, the company had also stated that the US government would allow it to develop the H100 (20 to 25% of total base revenues) in China.

Prices and AMD competition

So far, Nvidia has practically had the AI chip market all to itself, but 2024 will see competition from AMD (AMD.US), which will release the MI300X dedicated GPU for AI, next year. The rival company estimates 400 million in AI chip revenue in Q4 and $2 billion for all of 2024. For Nvidia, it's a harbinger that the days when it could 'dictate' prices are slowly going away, which could weaken margins but... Lowering prices may suggest stronger demand, so it may be not a huge problem (as long as demand will be strong). A Raymond James analysis suggests that the price of H100s implemented for training LLM models oscillated between 25,000 and 40,000.

Data center revenues will be the main point of observation for analysts (in Q3 they accounted for almost 75% of total revenues). Analysts are also likely to look at Nvidia's comments on OpenAI, which is having a tough time following the departure of Sam Altman. The startup was a big buyer of the company's graphics chips. A potential threat to Nvidia could be a recession, but so far macro forecasts do not assume a deeper slowdown in the US economy next year, making it reasonable to expect that company investments in AI will not slow down. Last week saw the debut of a new AI chip, from Nvidia - the H200. Wall Street can expect any price guidance for the new type of chip. A lower price could suggest that Nvidia will enter into direct price competition with AMD.

Today, the company's shares lost 1.5% and retreated from the ATH reached yesterday at $504 per share. The stock halted declines near the 23.6 Fibonacci retracement of the upward wave from the fall of 2022, near $400 per share. Source: xStation5