Nvidia (NASDAQ: NVDA) has ridden the tumultuous waves of the artificial intelligence (AI) realm, serving as its rudder amid the increasing storm of technology breakthroughs. The company is poised to reveal its first-quarter earnings report after Wednesday’s closing bell, a momentous event that will be scrutinized by the keen eyes of Wall Street.
What started as a promising journey has catapulted Nvidia’s stock to dizzying heights, scaling an astounding 548% from the beginning of the previous year, fueled by an insatiable demand for AI technologies. Nvidia’s supremacy in the AI domain has conferred upon it the mantle of the standard-bearer of the AI epoch, yet the investor community stands at a crossroads, pondering the sustainability of this meteoric trajectory.
As anticipation builds for Nvidia’s earnings revelation, the burning query persists – should investors strategically position themselves in Nvidia stock before the forthcoming report? Let us delve into the evidence at hand to unearth the potential opportunities.
Image source: Getty Images.
A Crucial Juncture?
The initial fervor surrounding AI has gradually waned in recent times, with investors veering away from blind faith in the AI domain. However, significant players in the cloud services arena continue to extol the virtues of AI-driven generative technologies, signaling a steadfast commitment to fortifying their investments in this realm.
Microsoft, witnessing a surge of 79% in capital expenditures to $14 billion in the first quarter, while Alphabet and Amazon reported escalated spending figures of 90% to $12 billion and $14 billion, respectively. Amazon foresees a notable upsurge in expenditure due to AI, posing a favorable portent for Nvidia given its substantial clientele within the data centers and cloud infrastructure domains.
For the first quarter of fiscal 2025 (ending April 30), analysts’ prognostications paint a rosy picture for Nvidia, with sales expected to skyrocket by a staggering 277% to $24.6 billion and earnings per share (EPS) poised to vault from $0.83 to $4.57.
The seemingly Herculean expectations find validation in Nvidia’s fourth-quarter performance, which boasted a record revenue surge of 265% to $22.1 billion. Notably, the company’s forecast for Q1 revenue stands at $24 billion, with historical trends indicating a penchant for conservative guidance.
Reading the Tea Leaves
In a curious turn of events, recent earnings releases from AI-centric entities have elicited confounding market responses. Palantir Technologies and Arm Holdings witnessed growth spurts in revenue and profits, yet Wall Street’s disenchantment with their guidance led to deflated stock performances post-release.
Similarly, AI-focused server manufacturer Super Micro Computer experienced a meteoric rise of 200% in revenue and a 308% surge in adjusted EPS, accompanied by an optimistic forward-looking outlook. However, investors’ expectations seemed insatiable, triggering a substantial stock plummet after the earnings disclosure.
These developments underscore a discernible pattern – a propensity to gaze beyond stellar results, seeking unwavering assurance of sustained AI momentum via robust future guidance.
To Invest or Not to Invest?
The decision whether to tread the Nvidia waters ahead of earnings hinges on an investor’s profile. Enthusiasts of stalwart businesses with a commendable track record, adept management, and technological tailwinds, eyeing a long-haul investment, may find Nvidia a compelling proposition.
However, for those tempted by the tantalizing prospects of a pre-earnings stock surge for a quick profit, Nvidia might not deliver the anticipated fireworks. Uncertainty shrouds the imminent earnings report, rendering the stock’s trajectory post-announcement an enigma.
Bearing in mind the enduring allure of AI and its transformative ramifications, one might contend that investors undervalue the steadfast AI demand and its revolutionary implications. However, a failure to significantly elevate guidance by Nvidia could potentially precipitate a stock downturn.
Nevertheless, Nvidia’s acumen in anticipating industry trends, exemplified by its substantial investments in research and development constituting 20% of its 2023 revenue, augurs well for its future trajectory. The company’s ongoing strides in pioneering next-gen AI processors fortify its lead over competitors, testifying to its forward-looking ethos.
Furthermore, the valuation conundrum looms over Nvidia, with a Price-to-Earnings (P/E) ratio of 79 based on trailing 12-month earnings, appearing ostensibly steep. Yet, three consecutive quarters of triple-digit growth and an upcoming brisk performance justify the stock’s current valuation at 38 times next year’s earnings.
For investors with a discerning eye fixed on the horizon, Nvidia’s illustrious legacy and war chest of innovations beckon, making it a compelling acquisition for those eyeing enduring investments spanning years if not decades.
Contemplating a $1,000 Venture into Nvidia
Prior to embarking on an Nvidia stock acquisition journey, ponder on this notion:
The Motley Fool Stock Advisor analyst corps has pinpointed ten stocks believed to be the best investment opportunities at present, with Nvidia conspicuously absent from the coveted list. The selected decaphy of stocks bears the potential of yielding substantial returns in the near future.
Reflect upon Nvidia’s inclusion in this elite roster back on April 15, 2005 – a hypothetical $1,000 investment at the recommendation juncture would have burgeoned to a staggering $566,624!
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*Stock Advisor returns accurate as of May 13, 2024