The AI chipmaker is scheduled to report earnings later this month. Will its stock price continue its strong rally?
Adoption of artificial intelligence (AI) is on the rise, but some investors are worried the trend might be getting a little old. Concerns about the economy and weakness in AI-related stocks led the Nasdaq Composite Index to enter a correction earlier this month, and some believe inflated valuations could lead to further declines.
Nvidia (NVDA -0.21%) has become the poster child for the generative AI trend, and when the company reports earnings later this month, Wall Street will be watching closely for insights into the state of AI adoption. That’s no exaggeration.
Nvidia's revenue has soared since the start of 2023, and its stock price has risen 619% (as of this writing), but it is still down more than 22% from its peak at the moment.
With much attention focused on Nvidia's quarterly earnings, investors are beginning to wonder if the recent sell-off in stock prices represents a buying opportunity ahead of the company's highly-anticipated financial report. Let's examine the available evidence.
Image source: Getty Images.
Anecdotal data is powerful
Nvidia's biggest driver over the past 18 months has been the rapid adoption of generative AI by cloud infrastructure providers who are best positioned to monetize AI, and Nvidia's graphics processing units (GPUs) are the gold standard for these applications.
As a result, cloud infrastructure providers like Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud have been upgrading their data centers to provide the computing power needed to run AI. Meta Platforms has also jumped on the bandwagon, building one of the leading large-scale language models (LLMs) to profit from AI.
Demand for Nvidia's AI-centric processors remains strong among cloud leaders, with the companies highlighting plans to increase capital spending to support their AI efforts, which bodes well for Nvidia in the current quarter.
Rivals and partners are reporting strong sales.
There's further evidence to suggest Nvidia's results are solid.
Advanced Micro Devices (AMD -1.50%), also known as AMD, is one of Nvidia's biggest rivals in the GPU space. The company reported its second-quarter results late last month, and the strength of its AI-related sales surprised many market watchers. Revenue rose 9% year over year, beating expectations, and data center sales soared to a record $2.58 billion (up 115%), driven by surging demand for AI.
Arm Holdings (ARM -1.21%), which makes the CPU cores that power many of Nvidia's AI processors, also had a strong performance. The company reported its fourth consecutive quarter of record results in the first quarter of fiscal 2025 (ended June 30). The company posted record revenue of $939 million, up 39% year over year, which it attributed to record licensing revenue driven by the “pervasive adoption of AI.”
Supermicro Computer (SMCI -0.23%) offers server and storage solutions powered by next-generation AI processors from companies like Nvidia. The company reported revenue of $5.3 billion for the fourth quarter of fiscal 2024 (ended June 30), up 143% year over year and 38% quarter over quarter. Despite the rapid growth, management noted that Supermicro continues to struggle with near-term “supply chain bottlenecks.”
What these AI companies have in common is that demand remained strong in the most recent quarter, driven by secular AI tailwinds, suggesting that Nvidia's sales should be similarly strong.
Stock splits are bullish
There's another reason to think Nvidia shares have the potential to rise even further: In the 12 months following their split announcements, splitting stocks rose an average of 25%, compared with just 12% for the S&P 500, according to a survey by analysts at Bank of America.
Since Nvidia announced its stock split on May 22, the company's stock price has actually fallen 19% (as of this writing) as concerns about the state of the economy overshadowed the AI tailwinds. History shows that Nvidia still has plenty of room for double-digit gains going forward.
Should I buy this stock before August 28th?
For investors looking to make a quick buck, Nvidia is probably not the stock for you. As its recent stock chart shows, Nvidia has been and will continue to be a volatile stock. Investors who bought last year are likely sitting on triple-digit gains, while those who bought last month are likely losing 22% or more. This illustrates an eternal truth in investing: it's best to buy shares in the best companies you can find and hold them for three to five years, so you're less likely to be affected by short-term fluctuations.
If you're wondering whether NVIDIA's stock price will go up or down after its upcoming financial report, you can guess as well as I can. I sent my crystal ball out the door years ago and it has yet to come back. Furthermore, anyone who claims to know what will happen in the coming days or weeks is not telling the truth.
If I were to venture a guess, and that's it, I would say Nvidia will report another record quarter. Analysts' consensus estimate is for revenue of $28.52 billion, slightly above Nvidia's guidance of $28 billion. But how the stock reacts to the report will depend heavily on the company's profitability and Nvidia's future guidance.
It's important to take a step back and look at the bigger picture. Nvidia's GPUs are the gold standard for AI processing, and while there are constant competitive threats, no successor has emerged. Most experts believe generative AI is still in its infancy as adoption continues to grow. Even the most conservative estimates predict generative AI will be a trillion-dollar market, and some predict it will be several times larger.
Nvidia's stock trades at a premium of 38 times earnings (as of this writing), but the company's triple-digit growth, industry-leading position, and long track record mean it's worth every penny.
My advice is this: if you (like me) believe that AI has a long way to go and that Nvidia will maintain its market dominance, buy Nvidia stock and hold on to it like crazy.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool subsidiary. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former market development director and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has invested in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Super Micro Computer. Motley Fool has invested in and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Meta Platforms, Microsoft, and Nvidia. Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
