Nvidia (NVDA.US) is scheduled to report fiscal-Q4 2024 earnings report after close of the Wall Street session tomorrow. Report for calendar November 2023 - January 2024 period will be released at around 9:20 pm GMT and will show whether company's results live up to AI-hype that has pushed company's stock to all-time highs. Let's take a quick look at what market expects from the release and what to focus on!
Fiscal-Q4 2024 earnings
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Create account Try a demo Download mobile app Download mobile appNvidia is expected to report another quarter of massive year-over-year increases in sales and earnings. Total revenue is seen increasing 235% compared to a year ago quarter. The biggest increase is expected in Data Center segment, which includes company's AI-related products. The segment is expected to have experienced an almost-370% year-over-year increase in sales. A year-over-year increase in gross profit is expected to be higher than in case of total revenue, meaning that AI-related products carry higher profit margins than company's other products. Nvidia's operating margin is expected to increase by over 27 percentage points while net margin is expected to improve by almost 20 percentage points compared to a year ago quarter.
Expectations for Nvidia's fiscal-Q4 earnings report. Source: Bloomberg Finance LP, XTB Research
What to focus on?
Focus in Nvidia's earnings will be of course on the AI outlook. Demand for chips used in AI applications has skyrocketed over the past year, and Nvidia's suppliers have greatly boosted their production capacity to meet this increased demand. Investors will watch for comments on both - demand and supply - in the upcoming earnings report. UBS analysts note that company's lead times for AI GPUs have likely declined from 8-11 months signalled during fiscal-Q3 earnings release to around 3-4 months now. This means that not only company's production capacity is larger than new orders it receives, but also that it managed to lower its order backlog significantly. This allows the company to capitalize on the early-AI craze before its competitors catch up with it. However, Nvidia's competitors are also boosting their production capacity. This also means that AI chips will likely become more and more available in the future quarters, and key players in the field will have to more and more relay on competitive pricing to attract customers. This would likely lead to margin squeeze and be a headwind to Nvidia's growth. It is a medium-term scenario that is likely to play out over a couple of quarters rather than immediately. Nevertheless, investors should look for hints on new orders, order backlog and production capacity in the upcoming earnings report, trying to find early warning signs.
Table below shows headline results from Nvidia for the past 20 quarters. As one can see, company has a very solid track record of beating sales and earnings expectations. Also, it can be seen that beat in sales and earnings does not always translate into share price gains during the post-earnings trading session.
Nvidia's earnings history for the past 20 quarters. Source: Bloomberg Finance LP, XTB Research
A look at the chart
Nvidia (NVDA.US) is trading over 5% lower today, on the way to make the biggest single-day drop since October 2023. The stock dropped to the lowest level since February 7, 2024, and is trading back below $700 per share. There were no news on the company reported that could justify such a big drop, and it looks like investors are trimming their Nvidia's positions amid pre-earnings uncertainty. While the stock trades around 8.5% below its recent all-time highs, another almost-7% drop would be needed for the price to break below the lower limit of the Overbalance structure and hint at potential trend reversal. However, given how volatile Nvidia's stock is, it may happen as soon as tomorrow. Options markets pricing currently implies an almost-10% post-earnings move in Nvidia's shares.
Source: xStation5
