Nvidia earnings in focus as AI hype translates to record high stock, profit surge

Nvidia  (NVDA) - Get Free Report shares are set to open at a fresh all-time high Tuesday ahead of the AI chipmaker's highly-anticipated third quarter earnings, slated for after the closing bell. 

Nvidia, the first chipmaker to top the $1 trillion mark in terms of market value following its blockbuster spring update that converted AI hype to tangible profit growth, is expected to see earnings rise nearly five-fold from last year to $3.37 per share. 

Group third quarter revenues, meanwhile, are likely to have risen around 170% from last year to $16.2 billion, according to analysts' forecasts, as the insatiable demand for AI technologies, and the chips that power them, continues unabated. 

The revenue gains are also coming alongside impressive profitability, with third quarter gross margins expected at around 72.5%, with a 2% margin of error, a level that represents its commanding share of the potential $1 trillion AI market.

Goldman Sachs, which added Nvidia to its closely-tracked 'conviction buy' list last month, argues the chipmaker will "maintain its statues as the accelerated computing industry standard for the foreseeable future given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models."

Nvidia outlook in focus amid AI demand surge

That view has investors keenly tracking the group's near-term revenue outlook, which it will release alongside today's third quarter earnings. Analysts expect Nvidia to forecast revenues for the three months ending in January, its fiscal fourth quarter, to rise two-fold from last year to $17.8 billion, with a bottom line of $3.77 per share. 

A key caveat to that forecast, however, as well as projections for Nvidia's 2025 fiscal year, is linked to the U.S. government's recent restrictions on high tech exports to China, which were toughened in October to include the group's A800 and H800 semiconductors.

Nvidia noted in a Securities and Exchange Commission that "given the demand worldwide for our products, we don’t expect a near-term meaningful impact on our financial results" as a result of the new U.S. restrictions, but the longer-term implications could be significant. 

Media reports suggest Nvidia is set to unveil a new series of AI chips, designed for customers in China, that will comply with new export rules and investors will likely seek clarity on the timing of their release when CEO Jensen Huang speaks to investors later this evening.

"If Nvidia is unable to find a compliant and performant GPU to ship to China, the export controls are likely to be a headwind in FY2025," said KeyBanc Capital Markets analyst John Vinh, who carries an 'overweight' rating with a $650 price target on Nvidia stock. 

"We see a potential ~20% impact, which will likely prove conservative given outsized demand for generative AI and are still modeling $82 billion in FY2025 Data Center revenues vs. $101 billion prior (to the export controls)," he added. 

New chips may cushion China export impact

That revenue hit may be cushioned, however, by the release earlier this month of Nvidia's new H200 chip, which it says will be faster offer more memory to power both generative AI and large-language models than its H100 predecessor.

The new chips, which are expected to ship in early 2024, will also make it easier for clients to run AI applications on Google Cloud using Nvidia-made chips with deeper integration between hardware and software offerings.

Nvidia unveiled a partnership with Google  (GOOGL) - Get Free Report in late August that seeks to leverage its cloud offering to clients, using Nvidia chips and its DGX supercomputing platform, to essentially create a new market for AI-as-a-service to thousands of companies worldwide.

The group is also expanding its reach into the PC market, where rival Intel  (INTC) - Get Free Report holds the lead position, with reports suggesting it will use technology from Arm Holdings to design CPUs that will run the Microsoft  (MSFT) - Get Free Report operating system.

Nvidia was one of Arm's biggest financial supporters heading into the September IPO and tried to buy the group before being thwarted by regulators in the U.K. last year.

"We believe Nvidia's story remains stronger than ever, as NVDA shortens the cadence of its next generation GPU releases given surging demand for GenAI while the company's three chip strategy (CPUs, GPUs, DPUs) offers revenue upside and addressable market expansion potential," said CFRA analyst Angelo Zino, who carries a 'buy' rating on Nvidia stock. 

"In addition, we believe NVDA's full-stack AI/software capabilities provide an incredible competitive moat and support its growing installed base," he addedd

Nvidia shares were marked 0.1% higher in pre-market trading to indicate an opening bell price of $504.75 each, a move that would extend the stock's 2023 gain to a staggering 252.5% and value the Santa Clara, California-based chipmaker at around $1.25 trillion.

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