Nvidia Projects 474% EPS Surge, 241% Revenue Jump in Q1

Quick Look:

Earnings and Revenue Growth: Nvidia’s Q1 earnings per share is expected to rise 474% to $5.22.
Stock Performance: Nvidia’s stock has increased 87% in 2024, making it the third most valuable company globally with a $2.3 trillion market cap.
Blackwell Chip Transition: New Blackwell chip introduction may cause Q2 growth deceleration and gross margin shrinkage from 77% to 75%-76%.

Nvidia, a leading AI chip supplier, is set to release its fiscal first-quarter results on Wednesday after the market closes. Despite expectations of some deceleration following its previous blockbuster growth, the numbers for the quarter ending in April are projected to be remarkable. Nvidia’s chips remain highly sought after, particularly for data centres driving generative artificial intelligence.

Explosive Earnings and Revenue Growth

Analysts polled by FactSet anticipate a substantial rise in Nvidia’s earnings per share, forecasting an increase of 474% to $5.22. Revenue should also surge by 241% to $24.5 billion. Although these figures reflect a slight decline from the prior quarter’s astonishing 765% earnings jump and 265% revenue surge. Also, they still signify robust growth.

Nvidia’s stock performance has been impressive, with an 87% increase so far in 2024 and a 200% rise compared to a year ago. This stellar performance has positioned Nvidia as the third most valuable company globally. Also boasts a market cap of $2.3 trillion, trailing only Apple and Microsoft. However, shares have remained relatively flat over the past two months.

Nvidia’s Margins Expected to Drop to 75-76% from 77%

In March, Nvidia unveiled its new Blackwell chip, sparking expectations of a slowdown during the transition from its older H100 chips to this next-generation model. These new chips should become publicly available later this year. Analysts, including those from BofA, predict that Nvidia’s second-quarter guidance might show sequential growth of less than 10% for the first time.

BofA analysts project that Nvidia’s gross margins will shrink from approximately 77% in the first quarter to a “more normalized” range of 75%-76% in the following quarter. They note that Nvidia’s stock might react negatively due to concerns about decelerating quarter-on-quarter sales growth and shrinking gross margins. Bears might argue that a decrease to 7-8% QoQ growth and a peaking and declining gross margin could signal pricing pressure, an unfavourable mix, and slowing demand or easing supply.

Market Outlook and Analyst Ratings

Despite these potential challenges, BofA maintains a positive outlook on Nvidia, assigning the stock a “buy” rating with a price target of $1,100. This target suggests a 19% upside from Friday’s close. Morgan Stanley analysts are also optimistic, noting no signs of growth pausing during the transition to the Blackwell chip. They highlight strong underlying demand and robust spending trends in AI, with increasing demand from newer customers such as Tesla and various sovereign entities.

Morgan Stanley expects Nvidia to maintain its market share despite rising competition from Intel, Huawei, Samsung, and others. The analysts emphasise that Nvidia continues to benefit from upward revisions in AI demand. It’s reinforcing their confidence in the company’s sustained growth trajectory.

Nvidia may face some deceleration in growth and a potential contraction in gross margins. However, the company’s long-term prospects remain strong. With a solid product pipeline and continued high demand for its AI chips, Nvidia should navigate these challenges and sustain its market leadership. Investors and analysts alike will watch the upcoming fiscal first-quarter results to gauge the company’s performance.

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