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Nvidia’s outstanding profit performance over the past year has added a premium to Wall Street’s expectations, pushing up the bar for what counts as an earnings beat and making it tougher for the stock to respond positively to quarterly financial reports. The Santa Clara, California-based chipmaker, which reports second-quarter earnings after the market closes Wednesday, has seen its stock pull back the day after reporting earnings in all of the last four quarters—despite meeting or beating estimates for earnings per share, revenue, and forward guidance. Over the past year, Nvidia has topped expectations for all the topline metrics—with the lone exception of the second quarter of last year, when it simply met guidance forecasts—and yet has still been penalized by investors the next trading day, according to Bespoke Data. “If I’m thinking about Nvidia guiding, I’m also thinking about the fact that for the last, say, three years they’ve consistently beat. … So whatever guide they give you, you have to think [it’s] with the expectation that they’re going to come in a bit ahead of that,” Matthew Bryson at Wedbush Securities told CNBC on Monday. Carrying the Weight The weight of the artificial intelligence buildout is falling largely on Nvidia’s shoulders, with the company increasingly positioned not only as the dominant hardware provider but also as the bank. The question is what Nvidia can do to actually impress investors on earnings day. The Street is projecting second-quarter EPS of $2.09 and second-quarter sales of $92.2 billion, according to FactSet. Cantor Fitzgerald highlighted consensus third-quarter sales expectations of $103.7 billion in a Saturday report. NVDA 1Y mountain Nvidia over the past year Beating expectations on top of the built-in premium would win laurels from investors. “Over $105 billion [for third-quarter revenue guidance] would surprise to the upside,” Kevin Cassidy at Rosenblatt Securities said on Monday. “And $110 billion would be a blowout.” Shareholder Returns But signs that the company is planning to return more of its profits to shareholders as opposed to recapitalizing them as part of the continuing AI buildout would win even more accolades from Wall Street. “[Another] catalyst we’re looking for, if the numbers don’t amaze investors, is [news on the] promise that they’ll start implementing 50% of free cash flow going back to purchasing stock and increasing the dividend,” Cassidy said. Cassidy compared the potential change in Nvidia’s capital structure to choices made by consumer electronics maker Apple after growth of the company’s signature iPhone started to slow. “No one was impressed with iPhone numbers after a while but then they started buying back shares, and so I think we could see a repeat of that for Nvidia,” he said. News about Nvidia’s latest AI chip platform—the Vera Rubin—could also move the stock, though industry experts wonder about the practical use cases in the short term, as the technological capabilities appear to be far ahead of the implementable commercial demand. “It’s cool that it exists, and I like reading about things like that. But as far as who uses it, whether they’re going to pay for it, what they’re going to pay for it—all that stuff is kind of up in the air,” said David Linthicum, former chief cloud strategy officer at Deloitte. Regardless of how Nvidia stock performs following earnings this quarter, the latest numbers will immediately send signals about the health of global equity markets, which are being propelled by the AI boom. “Nvidia is basically the AI bellwether,” said Yi Fu Lee, a software sector analyst at Benchmark StoneX. “It’s the bellwether for all my SaaS stocks because [it tells us whether] there’s still healthy demand within semiconductors” for graphics processing units.
