Financial Services, November 20 (Editor: Huang Junzhi) As the US election comes to an end and the “Trump carnival” fades away, the US stock market is about to usher in another heavyweight “weather vane.” “AI leader” Nvidia (Nvidia) will disclose its third-quarter earnings report after trading on Wednesday EST (early Thursday morning Beijing time). This will also be its first financial report after being included in the Dow.

As markets anxiously await this earnings report, Nvidia closed up nearly 5% on Tuesday. Wall Street analysts generally expect the chipmaker's quarterly sales to reach $33.1 billion, up 10% from the previous quarter and 83% from the same period last year.

Furthermore, for market participants, gross margin is still in focus. Matt Weller, head of global research at Jiasheng Group, expects gross margin to drop to 75% in the third quarter, and even to 73% in the next few quarters.

He pointed out, “Although this profit margin is still objectively high and enviable, the market's expectations are higher, which makes it necessary for Nvidia to balance it by showing stable profit margins or increased sales volume.”

“The question of whether profit margins are in a permanent downward trend or whether they can recover remains uncertain. Regulatory risk poses a challenge, as is increased competition, which may force Nvidia to adjust its pricing strategy.” he added.

Why is Wall Street paying so much attention?

How important is this financial report? Wall Street analysts generally believe that this financial report is related to whether the bull market hyped up by artificial intelligence (AI) is still supported, or whether the AI bubble is about to break through.

Bank of America commented that compared to the next non-farm payrolls data, CPI, or the Federal Reserve meeting, the chipmaker's profits may pose a greater risk to the S&P 500 index. Nvidia's latest performance report may determine the recent trend of the US stock market.

Dan Ives, a well-known analyst at the US investment bank Wedbush, wrote in the latest report released on Tuesday: “We expect the godfather of artificial intelligence, Huang Renxun (CEO of Nvidia), to bring another shocking event tomorrow to inject momentum into the bull market engine.”

But just as a coin has positive and negative sides, the incident itself has a positive impact, and it can be bad. Matt Weller of Jiasheng pointed out in the latest report that only “good” results handed over by Nvidia may not be enough.

“Hwang In-hoon has mastered techniques to reduce promises and overdeliver in terms of financial performance, but a series of profit 'exceeding' expectations has created so-called 'private numbers', that is, traders are beginning to consider the extent to which they have exceeded expectations generally announced by analysts. In other words, even if the data reported by Nvidia is slightly better than the above expectations, the stock is likely to run into trouble given the high expectations of traders.” he wrote.

Optimistic expectations

According to Ives, Nvidia's market share is rock-solid, which means it is “the only game in town.” He expects Nvidia's Q3 revenue to exceed expectations by $2 billion, and its performance guidance will also exceed expectations by $2 billion.

“Nvidia's GPUs will be the world's new oil and gold in the next few years. Customers can expect to invest $1 trillion or more in capital expenses.” he wrote.

Ruben Roy, an analyst at the US multinational independent investment bank and financial services firm Stifel, raised its price target for Nvidia from $165 to $180, while William Stein of Truist Securities raised his price target for Nvidia from $148 to $167.

Roy cites “a diverse set of data points,” including hyperscale companies continuing to invest heavily in AI infrastructure and demand for Nvidia's latest Blackwell AI chips.

“We believe Nvidia is well positioned in various markets, and its overall TAM (total potential market or revenue opportunity) will exceed $100 billion by 2025, while the long-term opportunity channel could be close to $1 trillion.” he wrote.

Goldman Sachs, on the other hand, expects strong market demand for Nvidia products. “We anticipate that strong demand for Nvidia's Hopper-based GPUs (i.e. H100, especially H200) and Spectrum-X (i.e. Ethernet-based networking products) will drive strong double-digit percentage growth in data center revenue,” the bank wrote in a report.

Goldman Sachs analysts said they will pay close attention to Nvidia's fourth quarter results guidance, which is expected to validate their bullish views on the stock.

Industry research analyst Kunjan Sobhani said in a recent report: “Nvidia's third-quarter revenue is likely to significantly exceed expectations for the past two quarters, and the company is likely to raise revenue expectations for the fourth quarter, thanks to the widespread adoption of its Hopper series products, even though hyperscale customers are waiting for Blackwell's production capacity to increase in 2025.”

Blackwell's hidden dangers

Ahead of Nvidia's earnings report this week, bad news broke: its new-generation Blackwell AI chip is once again facing delayed delivery issues.

According to reports, this AI chip has serious overheating problems in high-capacity server racks. The flaw has forced Nvidia to revise the rack design several times, which not only limits GPU performance, but may also damage the hardware. As a result, its customers are concerned that these technical issues will delay the processor deployment process in the data center.

Since Nvidia launched the Blackwell chip series in March of this year, delivery times have been delayed repeatedly. From the first second quarter of this year to the fourth quarter expected by CEO Hwang In-hoon, now, according to media forecasts, the improved Blackwell GPUs will not be shipped until the end of January next year at the earliest.

Nvidia has yet to make a clear statement on this. The company's spokesperson simply wrote in a statement to the media: “Nvidia is partnering with leading cloud service providers as an integral part of our engineering team and processes. Engineering iterations are normal and expected.”

That doesn't completely reassure analysts, though. Wells Fargo said in its latest report: “Investors now need to add this to the list of issues.”

Stein of Truist Securities said, “Our conversations with industry contacts did not accurately confirm this latest data point, but they do reflect the challenges faced by the supply chain during production.”

Angelo Zino, an analyst at market research firm CFRA Research, said investors should lower expectations that “Nvidia will provide strong guidance for its highly anticipated Blackwell launch.”

Overall, however, Zino expects Blackwell chips to be sold out for most of 2025.

Matt Weller Blackwell of Jiasheng said that Blackwell chips were only officially launched after the third quarter of this year. We mentioned earlier that we believe that the first quarter of fiscal year 2025 (ending April) is the real “explosion” quarter. At that time, the rise in production capacity of Blackwell chips and improvements in supply-side conditions will drive EPS forecasts to rise significantly.