Wednesday, May 24, 2023

Ahead of Today's Earnings Report: "Nvidia’s $400 Billion Rally Is Set for Reality Check" (NVDA)

As we saw yesterday, NVIDIA is the most expensive component of the Nasdaq 100, trading at almost 30 times price-to-sales:

Party like it's 1999!: One-Fifth Of The Nasdaq 100 Are Trading At 10 Times Sales, Or More

the stock is also the fifth (when you combine both classes of GOOG) most heavily weighted issue in the index, just behind Amazon. Ditto for the S&P 500.

From Bloomberg via Yahoo Finance, May 24:

The rally that’s added roughly $400 billion to Nvidia Corp.’s market value this year is about to be put to the test.

The chipmaker has been at the heart of this year’s stock market frenzy around artificial intelligence and quarterly earnings due after markets close on Wednesday will be scrutinized for evidence that spending on artificial intelligence computing is boosting sales.

“It’s going to be less about the actual results and more about what they put out there in terms of context for continued growth in the space,” said Mike Akins, founding partner of ETF Action, whose Amplify Thematic All-Stars ETF holds Nvidia.

After Nvidia shares doubled this year, boosting its market value to $759 billion, investors have a lot at stake. The company, whose semiconductors are used in computers powering AI applications, has emerged as one of the most popular ways to gain exposure amid an investor frenzy spawned by the success of OpenAI’s ChatGPT. The stock is the top performer in both the S&P 500 and Nasdaq 100 indexes this year, even as conditions in its core markets of personal computing and data centers remain tough.

Now comes the hard part: Providing evidence that AI-related demand is translating into enough revenue to justify the stock gains.

“Investors are going to demand to see some more in terms of specifics about the outlook for profitability at some point,” said Matthew Maley, chief market strategist at Miller Tabak + Co., LLC.

All eyes will be trained on results from Nvidia’s data center business, which is the dominant provider of AI accelerator chips. Cloud computing giants such as Microsoft Corp. and Inc. have reined in spending in general and analysts expect that some of the slowing is the result of a shift in budgets toward hardware specifically for AI....


In early trading the stock is down $5.84 (-1.90%) at $301.04.