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Nvidia (NASDAQ:NVDA) stands as the undisputed leader in artificial intelligence (AI) chips, powering data centers and enabling breakthroughs in generative AI. Over the past few years, the company has transformed from a graphics specialist into a tech powerhouse, with its stock surging amid the AI boom.
Over the past five years, Nvidia has beaten Wall Street’s earnings estimates 90% of the time, sometimes by more than 30%, showcasing consistent outperformance. In the last four quarters, however, the chipmaker has averaged a beat of only 6.5%, likely due to analysts getting better at predicting its results.
Investors are now laser-focused on Nvidia’s upcoming third-quarter results, set for release after market close on Nov. 19. Expectations run high, with Wall Street forecasting $54.83 billion in revenue and $1.25 in adjusted earnings per share — up 56% and 54% year-over-year, respectively.
This pressure mounts as “whisper numbers,” the unofficial higher estimates circulating among traders, suggest Nvidia must deliver an even bigger surprise to avoid disappointing the market. Any miss could trigger a selloff, especially given its role as a bellwether for the broader AI sector.
AI Dominance Fuels Top-Line Surge
Nvidia’s success in the recent quarter likely stems from its commanding position in the AI ecosystem. As the primary supplier of GPUs for training large language models, the company has capitalized on demand from hyperscalers like Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META).
In the prior quarter, data center revenue hit record levels, driven by Blackwell chip ramp-ups and partnerships with AI innovators. These factors could push Q3 revenue toward or beyond the guided $54 billion, with analysts projecting 54% growth. On the bottom line, improved margins from economies of scale and software integrations, such as CUDA, may boost adjusted earnings to around $1.25 per share.
Beyond hardware, Nvidia’s Omniverse platform for simulations has gained traction in industries like automotive and robotics, adding diversified revenue streams. Recent wins include expanded deals with Oracle (NYSE:ORCL) for cloud AI infrastructure, potentially contributing millions in incremental sales. Overall, these tailwinds position Nvidia for another strong showing, reinforcing its market cap lead on the S&P 500.
Headwinds from China and Market Skeptics
Despite the momentum, setbacks could temper results. Nvidia faces ongoing restrictions on its ability to sell advanced AI chips to China. This “hangover” persists, with no H20 chip revenue in Q3, as CEO Jensen Huang recently confirmed, and no expectation for that to change.
While the company still sells less advanced tech, such as gaming and automotive chips, to Chinese customers, the loss of high-margin data center business — previously a key growth driver — may cap upside. Analysts estimate this could shave several billion off potential revenue.
Additionally, hedge fund manager Michael Burry’s bearish put options on Nvidia, revealed last week, sparked a 7.2% stock drop, signaling concerns over AI hype and valuation risks (Burry just announced he was closing his Scion fund and returning investor funds because he no longer understood AI market valuations).
Broader market dynamics, including competition from Advanced Micro Devices (NASDAQ:AMD) and a coming cash crunch, add uncertainty. If demand softens or supply chain issues arise, these could pressure margins and lead to a guidance miss for Q4, where Wall Street expects $61.33 billion in revenue.
Key Takeaway
Nvidia’s earnings next week could indeed be a blowout, given its 90.5% beat rate over the last 21 quarters and robust AI demand. However, smaller recent beats and China restrictions raise the chance of a negative surprise if results fall short of whisper numbers or its guidance disappoints.
In the last three earnings announcements in February, May, and August, Nvidia’s stock has briefly declined twice afterward, underscoring potential post-report volatility. Long-term investors might buy before results if they are confident in Nvidia’s fundamentals — which otherwise seem solid — but risk-averse ones might wait for clarity on guidance.
The chipmaker’s stock is down 12% from its all-time hit above $212 at the end of October, and its shares have fallen in the past few sessions. CoreWeave (NASDAQ:CRWV) just shocked the market with news of a data center partner’s buildout delay and we may see other AI stocks run into similar situations as the race for scarce resources heats up. The prudent choice just might be to take a wait-and-see approach before diving in.