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Market Moves Yesterday
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Hey Scoopers,
Happy Tuesday! In today’s edition, we primarily look at the Wall Street estimates for Nvidia’s upcoming quarterly results.
So, let’s go 🚀
Market Wrap
The Dow Jones Industrial Average closed at a record high on Monday as investors continued to move on from a steep sell-off earlier this month.
Traders also appeared to be rotating out of tech and into other market areas. For instance, the S&P 500 energy sector climbed over 1% while the tech index was down 1%.
Market bellwether Nvidia fell 2.3% ahead of its earnings report due tomorrow, while chip stocks such as Broadcom and Micron also ticked lower.
Investment firm Piper Sandler explained that the market rally is expanding beyond a concentrated group as the small-cap index jumped over 3% last Friday.
While the S&P 500 index is trading near all-time highs, the returns have been attributed to the performance of the Magnificant 7 stocks, led by Nvidia. Can this outperformance in the second half of 2024?
Trending Stocks 🔥
PDD Holdings - Shares of the Temu parent company sank almost 30% as it reported a revenue miss in Q2 of 2024.
Icahn Enterprises - The investment firm fell 12% after it announced the sale of depository units worth $400 million through an “at-the-market” offering program.
SolarEdge Technologies - The green energy stock fell 8% after announcing a change of CEO.
All Eyes on Nvidia
Nvidia will announce its fiscal Q2 of 2025 (ended in July) results on Wednesday and is forecast to report:
👉 Revenue of $28.68 billion
👉 Earnings per share of $0.64
Nvidia’s Earnings Estimates
Source: Yahoo Finance
In the year-ago period, it posted revenue of $13.5 billion and earnings per share of $0.25.
Nvidia has crushed consensus estimates in each of the last four quarters, enabling it to return 170% to shareholders since August 2023.
The earnings season is about to end, which suggests that we already have a fair idea about the health of the AI hardware market based on quarterly results from other ecosystem players.
For example, Nvidia’s foundry partner, Taiwan Semiconductor Manufacturing or TSMC, saw a 33% jump in Q2 sales, much higher than its 13% rise in Q1. Moreover, its revenue in July rose by 45% year over year.
TSMC has focused on increasing the packaging capacity of advanced chips used to manufacture AI chips for Nvidia. So, a surge in Q2 sales offers evidence of robust growth in the chip giant’s revenue and earnings, given that Nvidia is TSMC’s second-largest customer.
Another hardware player that has reported strong sales growth is Super Micro Computer. It is a manufacturer of AI server solutions used for mounting chips from companies like Nvidia. In the June quarter, Super Micro increased sales by 143% year over year.
Moreover, Super Micro’s midpoint revenue guidance for the current quarter stands at $6.5 billion, up 216% year over year.
These data points indicate that Nvidia could be ramping up the production of its next-generation Blackwell chips, which has been delayed by a few weeks.
Big Tech’s Big Bet on AI
Next, big tech giants, including Microsoft, Meta Platforms, Alphabet, and Amazon, are investing heavily to bolster their AI infrastructure.
Microsoft’s capital expenditures have risen by 75% year over year to $56 billion in fiscal 2024.
Alphabet is forecast to end 2024 with a capex of $50 billion as it invests in servers and data enters. In 2023, its capex spending was much lower at $32 billion.
Meta raised its 2024 capex guidance to between $37 billion and $40 billion, up from $28 billion in 2023.
All three AI companies are Nvidia’s customers that have purchased chips from the GPU maker to train and deploy AI models.
A Focus on Valuation
Valued at $3.1 trillion by market cap, Nvidia is priced at 46x forward earnings, which might seem expensive. However, analysts expect earnings to grow by 46% annually in the next five years.
So, NVDA is on track to end fiscal 2029 with adjusted earnings of $7.75 per share. If the stock is priced at 35x forward earnings, it should trade around $270 in August 2028, indicating an upside potential of over 100% from current levels.
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DISCLAIMER: None of this is financial advice. The newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.