Nvidia Pre-earnings Analysis
Artificial intelligence leaders have been under pressure recently as worries of a potential AI Bubble surface. Comments from OpenAI’s CEO Sam Altman kicked off the worries, when he spoke in an interview and said: “Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes.” The comment sent stocks like Nvidia, AMD, TSMC, and other prominent stocks on the market sharply lower, right ahead of Nvidia’s expected earnings date.
Over the next ten years, global AI infrastructure spending is expected to exceed $7 trillion ($5 trillion in the next five years alone) the majority of it being on data centers (this is why data centers are a big part of our trading focus). Worries are that this spending isn’t going to have the return on investment that’s expected, which could ultimately hurts countries, companies, and consumers who invest in AI. Sam Altman did go on to say that generative AI is revolutionary, but his reference to an AI bubble eclipsed that.
It’s safe to say that generative AI is as groundbreaking as the internet. But what we know from history is that it took 5-10 years for the internet to begin reflecting in productivity statistics. This might be the case for AI…it is definitely a breakthrough in our time, however its positive impact on productivity may not be seen for years to come. This stark comparison between AI and the internet is important because it dates back to the AI bubble, when the commercial internet began scaling in the mid 1990s and excitement over its potential grew markets to record highs, perhaps too optimistic for the period. It’s a classic case of investors “over-betting” on the future.
Let’s bring it back to Nvidia:
The good news for Nvidia is that if generative AI was gold buried in the ground, they are the ones selling the shovels. So the abundant spending by large cap tech companies is actually good for them. Nvidia’s high-performance GPUs and software offerings are the heartbeat of artificial intelligence, earnings them the top spot as the biggest company in the world. The sharp demand for their products has written an unreal story. A company that was generating gaming GPUs just a few years ago is now the most dominant force, growing revenue from $11 billion in 2019 to a projected $204 billion this year.
The massive revenue growth is accompanied by even greater profit growth. The company operates at a 55% profit margin, allowing them to grow their free cash flow from $3.81 billion to $72 billion in the past three years. These two points are important to highlight because Nvidia is now the most valuable company in the world at $4.3 trillion. In fact, this is the largest valuation a company has ever achieved, which is part of what raises concerns about an AI bubble. But the key difference between past bubbles and the current state of the market is that Nvidia actually backs its valuation by strong figures. The company’s price to earnings ratio has actually fallen from 116x to 44x in the past two years, despite the stock’s push. And forward free cash flow continues to stun investors.
Earnings focus:
There’s a very slim chance Nvidia disappoints on earnings. The company has a track record of beating expectations, which are $45.9 billion in revenue for this quarter and 1.00 EPS. What matters more will be their future outlook, which is expected to ramp up by Q1 2026. Investors want to hear about sales in China, which they just got U.S. export license approvals for. And they want to hear about their next-gen chip status and when that’ll go into production. These two elements are key for the company to maintain their future outlook, which is largely propping up the stock at this massive valuation. A hint of lowered guidance can spark fear and reinforce the AI Bubble theory. We'll share any critical updates for our Hyper Stocks Pro members.
Final note:
This quarter’s revenue growth is projected to be the slowest in the past two years, which may send an initial shock to markets. Nvidia’s revenue growth has slowed from triple digit percentage gains to a descending double digit gain in the past two quarters. As mentioned above, the company’s outlook is expected to sharply rise again for 2026, so the short term reaction to this quarter may be negative, but what’s key will be their future outlook.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always do your own research or consult with a licensed financial advisor before making investment decisions.