Nvidia Earnings: Expect The Unexpected (Technical Analysis)
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Summary:
- The assent to our ultimate target of $200 for Nvidia Corporation can be initiated on Wednesday following the closing bell when the latest earnings are released.
- All eyes will be on the companies results from their latest innovation, “The Blackwell Chip.”.
- With revenue growing steadily over the past two years, Wall Street is bracing itself to see if Nvidia can come out with another earnings surprise that signifies there is still room to drive the tech sector higher.
Klaus Vedfelt
One would assume that investors are expecting a cool off in lofty earnings results by Nvidia Corporation (NASDAQ:NVDA) on Wednesday as the share price has broken above resistance at $140 only to limp back to that area as earnings near.
High valuation, reported overheating problems for the Blackwell chip, as well as murmurs of delivery delays has taken the mood on Wall Street from optimization to skepticism.
However, Nvidia’s customers include tech giants such as Meta, Google, Dell, Amazon, and Microsoft among others. They are in the midst, it must be said, of adding AI infrastructure to their platforms and Nvidia remains the front-runner to provide the technical software to facilitate this transformation.
So, has the skeptic mood reflected in the share price action of late got this wrong and will Q4 earnings be another fruitful result, adding fuel to set the tech industry once again to gain upward momentum?
Nvidia has been one of our big winners since we identified a breakout at now post stock split $18.70 in January 2023. We have been charting the stock upwards over the following couple of years with a target of $160, which has not materialized yet. We are seeing just under $150 so far as this equity takes a breather from its previous bull frenzy that saw only five selling months out of twenty-five from the low of $10 in September 2022.
It has also been this company that played a considerable part in the bull market in the past two years. Artificial intelligence was introduced to the mainstream, and the dramatic rise in the Nvidia’s share price has also participated as a catalyst for some other major companies integrating Nvidia’s products. They are seeing their share price rise dramatically too, dragging the wider market with it.
Focus shifts to Blackwell:
Blackwell chips offer reduced energy consumption and operating expenses of up to twenty-five times compared to chips previously offered by the company. CEO Jensen Huang has described the demand for Blackwell as “insane.” Morgan Stanley analysts expect for these chips to be between $5-$6 billion for Q4, while Ivana Delevska of Spear Invest said she expects Blackwell revenue to bring in a staggering $12-$13 billion in revenue for the fourth quarter. However, reports of delivery constraints and overheating issues on customer servers may play a pivotal role in what the actual numbers are tomorrow.
Delays have been reported that the initial production of September had been delayed to December.
Earnings:
A total EPS surprise to the upside of 25% has been welcomed by investors this year, with just under 20% upside in revenue. Q3 saw a slowing in EPS release to just of 5% against just touching double digits for the previous two quarters in 2024. However, the company has maintained its growth trajectory each quarter. With expectations of revenue jumping from $28-$33 billion between Q3 and Q4, an incredible 84% increase from the same period last year, it is hardly a sign of a slowing company should these numbers materialize.
The company saw a 3% decline in gross margin from Q1 to Q2 from 78%-75% with analysts expecting a similar gross margin of 74.4% this time round as operating expenses continue to rise.
Q4, what to expect:
I wouldn’t be surprised if Nvidia has taken a significant number of orders for the Blackwell chip along with a steady flow for its existing GPU units that will see a big upside in revenue for this quarter. The world’s most valuable company has continued to outperform expectations, particularly over the last two years, as AI continues to evolve and the tech giant meets demand from the world’s largest companies looking to integrate their products.
We are upgrading our targets to firstly $180 and then $200 in the next eight to twelve months. We see continued growth for this company through this period as Nvidia continues to innovative. As we speak, there is nothing bearish showing on Nvidia’s charts, apart from the lack of appetite to drive the share price higher by demand going into earnings. However, we have seen this type of action before around earnings releases as a tentative Wall Street wonders whether the AI bubble has reached its maximum inflation point.
The development and demand for the companies latest innovation in this space can lead to increased numbers over the next twelve months, as sentiment becomes skeptical until the numbers are released. Expect the unexpected.
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