Bank of America believes that the market may underestimate the disappointing performance risks of Nvidia. The implied stock price volatility of Nvidia options is 10%, which means that the stock price may fluctuate in any direction by 10%. Since 2018, the stock has never fallen more than 8% on its earnings release day.
AI giant will release the highly anticipated financial report this Thursday. $NVIDIA (NVDA.US)$ Investors are eagerly anticipating the release of the financial report, expecting strong performance and hoping for a new high in stock price.
It is widely expected in the market that Nvidia's second-quarter revenue will double year-on-year, reaching $28.68 billion. In the past few quarters, Nvidia's performance has consistently exceeded expectations, with quarterly revenue exceeding expectations by approximately $1.5 billion.
The key is whether Nvidia can capture the market's optimistic sentiment. As a leader in the semiconductor industry, Nvidia's performance directly affects the confidence and performance of the entire industry and even the broader market.
Daniel Morgan, Senior Portfolio Manager at Synovus Trust, said that Nvidia is not only a benchmark in the chip industry, but also a benchmark in the entire artificial intelligence industry. If Nvidia fails to meet expectations, investors may sell off companies in the AI field.
Currently, the options market has already priced in high volatility, with Nvidia options implying a stock price volatility of 10%. Since 2018, the stock has never dropped more than 8% on the day of its financial report. Currently, Nvidia's market value is close to $3 trillion.
Expectations remain high, with a doubling of year-on-year revenue.
According to data from the London Stock Exchange as of August 23rd, Nvidia's second-quarter revenue is expected to grow by approximately 112% compared to the same period last year, reaching $28.68 billion. However, due to increased production costs resulting from increased demand, the adjusted gross margin is expected to decline by more than 3 percentage points, from 78.8% in the previous quarter to 75.8%.
However, the market has always had higher expectations for this AI leader, rather than just meeting expectations. Some investors are concerned about whether Nvidia can meet these high expectations.
Analysts predict that Nvidia's financial report will have a significant impact on the AI sector on Thursday. If it exceeds Wall Street's expectations, it may further boost the rise of the AI sector; on the other hand, if it falls slightly short, it may have an impact on the stock price.
At the same time, some analysts warn that Nvidia's growth may slow down as it expands in size.
Nvidia's stock price has surged more than 150% this year, increasing its market cap by $1.82 trillion and driving the S&P 500 index to new highs. Currently, Nvidia's price-to-earnings ratio is about 37 times, compared to an average P/E ratio of about 29 times for the big seven US stocks.
Michael Schulman, Chief Investment Officer at Running Point Capital, said:
We are facing the law of large numbers, once a company reaches a certain scale, it cannot maintain the same growth rate.
Is the market underestimating the risks?
Bank of America analyst Gonzalo Asis warned in a recent report:
The market may have underestimated the disappointing performance risks of Nvidia, and the financial results may bring unexpected volatility to the market.
It is mentioned in the report:
The implied stock price volatility of Nvidia options is 10%, which means that the stock price may fluctuate in either direction by 10%. Since 2018, the stock has never fallen more than 8% on the day of the report.
The volatility index (VIX) on August 5th was 65, highlighting the return of fragility to the broader market, and the S&P 500 index tends to remain fragile after such a large shock. Any unfavorable results of Nvidia's financial report may exacerbate market instability.
Since July, the stock prices of companies in the AI industry chain have experienced a wave of corrections due to concerns in the market about whether AI heavy investments will bring corresponding returns. Nvidia's stock price has fallen 20% for most of July and early August, and although there has been a recent recovery, the stock price is still about 5% lower than its peak in June.
However, Goldman Sachs is more optimistic about Nvidia's current situation, expecting its Q2 revenue and EPS to reach $29.769 billion and $0.68, respectively, exceeding market expectations by 4.1% and 5.9%, and exceeding market expectations for EPS by 11% by 2025.
Despite the stock price being around $125 in June and now, the current valuation and expectations are more rational and balanced than in June, and there is an optimistic attitude towards earnings and the sustained demand trend.
There is room for profit, and the expected earnings per share (EPS) for the fiscal year 2025 is $4.16; and the strong demand trend continues, with cloud computing service providers (CSP) and enterprise demand remaining strong, which may support Nvidia's performance.
The performance pace of the past few quarters, that is, the revenue of each quarter was approximately $1.5 billion higher than expected (with reference to the expected revenue of approximately $28.8 billion in the July quarter), and it is expected that the revenue of the next quarter will increase by approximately $2 billion on a quarter-on-quarter basis.
The delayed impact of the next generation Blackwell is also a concern.
The anticipated delay in the production of Nvidia's highly anticipated next-generation AI chip, Blackwell, is also a concern for this performance.
Nvidia CEO Huang Renxun said in May that the chip would ship in the second quarter. But analysts subsequently pointed out that design obstacles could delay the shipping time.
Some analysts believe that Nvidia can offset most of the impact of the Blackwell chip delay by substituting orders with the previous generation Hopper chips. The features and profits of the Hopper series processors are not as good as Blackwell, but they are sufficient for most AI-related applications.
JPMorgan believes that the increase in GB200 production capacity will slow down in the second half of 2024, but is expected to expand significantly in 2025. Although there will be production challenges in the early stages, it is expected that the Blackwell-related GPU shipment volume will still reach about 4.5 million units in 2025. It is expected that Taiwan Semiconductor's revenue will remain relatively stable.
Research firm SemiAnalysis said that if Nvidia's chip contractor Taiwan Semiconductor raises costs, it means that Nvidia's revenue growth in the first half of next year may be impacted and gross margin may be squeezed.
LSEG data shows that Nvidia is expected to grow its third-quarter revenue by 75% to $31.69 billion, ending its five consecutive quarters of triple-digit growth, which was very strong in the same period last year when the company's revenue surged about 206% to $18.12 billion.
Editor/Somer