The golden child of the artificial intelligence boom is set to report earnings this Wednesday after market close and it has traders on the edge of their seats. Nvidia, valued now at $3.18 trillion, trails Apple as the most valuable company in the world. Its phenomenal growth can be attributed to the indispensable role they play in the semiconductor space, making themselves the gatekeeper of advanced artificial intelligence.
Nvidia has grown its quarterly revenue at an average of 244% over the last three quarters, reaching $26B last quarter. Year over year revenue grew by 125% from 2022 to 2023, closing out the year at nearly $61B. These astonishing numbers catapulted the stock higher, but what amazed investors, is that as the stock pushed higher, their price to earnings ratio came down. This phenomenon happened because of Nvidia’s ability to exponentially grow their profitability at an average of 885% in those same last three quarters, reaching $14.88B, or 59 cents per share, last quarter.
Wall Street, retail traders, even your grandma and grandpa (probably) wanted a piece of this growth, and they bought in. Needless to say, this turns the pressure on Nvidia to perform well on their earnings this week. The options market is currently reflecting an implied volatility reading of 127% for the chain expiring on August 30th, which translates to about a (+/-) $15 from the underlying stock. Whether that’s bullish or bearish depends on the earnings results.
As you can see from the bar chart posted above, Nvidia’s numbers are expected to grow again, but their quarterly rate of growth is no longer as exponential as before. Their earnings per share last quarter came in at 58 cents, this quarter they’re only expected to grow to 59 cents per share. While this is in the right direction, it may not be enough to move the needle. With such high expectations from all its investors, Nvidia’s results can’t just “come in line,” they need to far exceed the forecasts to really push the stock higher. Coming just in line with expectations may set the notion at that artificial intelligence growth is waning, and it may scare some folks out of the stock in the short term. However if Nvidia can significantly beat earnings again and post strong forecasts, then it may ignite that excitement for buyers to take it back to all time highs.