Will Nvidia's results heat up Wall Street again? 🍳What to expect from the chip giant?

Nvidia (NVDA.US) is the second-largest company on Wall Street but certainly the most closely watched and fastest-growing of all, U.S. 'large caps', thanks to its dominant position in the market related to AI solutions. Tomorrow, on May 22 after the US trading session, the company will report results for fiscal Q1 2025 (the company's fiscal calendar is a year ahead). Thus, the most heavily anticipated report in the US will actually come at the 'close' of the earnings season, potentially raising volatility on stock market indexes and technology company stocks. The options market estimates about 8.5% volatility in stock prices after the report, expecting a slightly less violent reaction, compared to previous quarters.

Expectations for fiscal Q1 2025

• Revenues: $24.74 billion vs. $22.1 billion in Q4 2024 and $7.19 billion in Q1 2024

• Earnings per share (adjusted EPS): $5.19 vs. $4.93 in Q4 2024 and $0.82 in Q1 2024
• Data Center revenue: $21.27 billion vs. $18.4 billion in Q4 2024 and $3.6 billion in Q1 2024
• Net income: $12.91 billion vs. $12.21 billion in Q4 2024 and $2.04 billion in Q1 2024

Will Blackwell be an Nvidia growth catalyst?

Although the publication of the first release of Chat GPT took place in the fall of 2022, Nvidia has since remained the main and essentially the only significant supplier of AI chips and a whole set of services around its core business, which has become Data Centers (more than 75% of sales in fiscal 2024). The chipmaker is likely to provide more information on the new Blackwell platform, which it announced in March for debut. 

• Nvidia has christened Blackwell as "the world's most powerful AI chip," supporting large language models (LLMs), new AI advanced systems and the Grace Blackwell GB200. Nvidia has estimated that Blackwell will be available through Amazon (AMZN.US), Microsoft (MSFT.US) and Alphabet (GOOGL.US), this year. Potentially bringing closer the timing of the chip's distribution to major cloud providers could be an important part of the company's commentary. 
• The company said Blackwell will be adopted by Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla and xAI. Also, the expansion of major customers to include more companies and an approximation of the scale of interest could be a significant, possibly positive, element of the report for the market.
• Blackwell is a graphics processing unit (GPU) that enables artificial intelligence models at an advanced scale, which, according to the company, can "reduce companies' operating costs from LLM inference and energy consumption by up to 25 times." The high scale of interest in Blackwell could also be another signal of building a 'wide moat' that will be difficult for competitors to cross, even on the horizon of the next few years

Nvidia's data center business posted record sales of $18.4 billion in the last quarter of fiscal 2024, with $3.6 billion in fiscal Q4 2023 when GPT debuted. Data center revenue accounted for 76% of NVDA's sales, in the last quarter of last year. Source: Bloomberg Finance LP, XTB

Wall Street's appetite is growing

Simply beating earnings forecasts may not be enough for the market, which is setting the bar ever higher for the company and looking for more and more growth 'catalysts' and 'aces' up its sleeve. The question, then, is not so much whether Nvidia will beat the market's forecasts but whether CEO, Jensen Huang and the company itself will again beat forecasts significantly and whether guidance for the next quarters will be revised upward accordingly? 

• It's likely that quite a few investors are quietly hoping that Nvidia will announce further business moves that will justify rising valuations and higher margins for longer. If such news might not happen, we could perhaps see a 'disappointment' tomorrow. 
• Investors will be looking for answers as to how much demand for AI chips still outstrips supply and, above all, how long this situation can continue. Information on AI chip shipment forecasts could also be important, as expanding capacity and distribution could be a sign of a growing market and increasing the scale of Nvidia's revenues as well as profits; justifying a higher valuation
• As companies may be rushing to implement AI, and at this stage Nvidia's competitors are still 'in the blocks' (AMD is probably the closest); the company may benefit from higher margins and potentially exponentially growing orders, reflecting an 'arms race' for more powerful AI and power, conditioning the performance of language models and generative AI.

The market estimates two more years of rapid growth in NVIDIA's earnings. At the same time, Q1 2025 is the last quarter of the low base effect. For the next quarter, the market expects revenues of $26.7 billion. Over the past four conferences, the company has presented estimates more than 14% higher than market expectations. Will it raise revenue forecasts for fiscal Q2 2025 to around $27.5 billion? Source: Bloomberg Finance LP

• An important question is whether the global consumer will remain strong enough to 'drive' companies' budgets for artificial intelligence, and how long this situation will persist. It's worth bearing in mind that while global data suggest improvement, recent macro readings from the US have been somewhat disappointing; retail sales, among others, were noticeably weaker. 
• The market estimates Nvidia's revenue at $160 billion in 2027 (calendar 2026), compared to $61 billion in the completed fiscal 2024 (calendar 2023). To justify the high valuations, the market will be 'forced' to hold the company accountable for further 'miracle news'; in subsequent quarters.
• However, while the company itself does not have an impact on the economy, it does have an impact on the AI market and competitors, and for that matter, investors will be extremely sensitive to any news suggesting a decline in margins, profits, or general uncertainty about maintaining expansion momentum in the coming quarters and years. 
• The lack of revision of quarterly forecasts can be seen as a sure sign of caution preceding 'weakness. On the other hand, the results of Nvidia's large customers performed well, and the new version of GPT-4 Omni confirms that the race for generative AI is still on.

Uncertainty from China

• In early October 2023. The United States banned the export of Nvidia AI chips, including the 'flagship' H100 and A800 units, to China. In March, the U.S. Department of Commerce updated export restrictions on technology, including GPUs targeting AI. The new rules ban the export of advanced chips as well as devices containing them. 
• The company is now designing new chips for Chinese customers to comply with the regulations. China's chip market is still very small compared to Taiwan, or the US and Europe alone. 
• Data from SIA and the Boston Consulting Group indicate that by 2032 it will capture about 7% of global chip sector investment, compared to almost 60% for the US and Taiwan. 
• Through this, even negative news from China is unlikely to change the overall picture of the report because demand for Nvidia's AI products is still likely to outstrip supply, so China does not play such an important role

Nvidia shares (D1 interval)

Source: xStation5