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With the Dow (^DJI) hitting 40,000 and the S&P 500 (^GSPC) and Nasdaq (^IXIC) also near new records, investors may be looking for the next catalyst to continue to fuel the recovery.
Just in time, the Nvidia chip manufacturing juggernaut arrives. The company’s report comes at the very end of the regular earnings season – almost a month after Meta’s.
And Nvidia’s results have only grown in importance as the company’s value has increased.
Its market cap is $2.3 trillion and it is now the third-heaviest stock in the S&P 500, behind Microsoft and Apple. In what might be called the Nvidia-verse, a whole series of semiconductor companies that compete with or serve Nvidia rise or fall with their shares.
Speaking of its shares, its performance has left the other so-called Magnificent Seven stocks in the dust this year. (I know, I know, we don’t even call them that anymore.) But after rising a whopping 240% last year, Nvidia is on track to double again by now in 2024, making it the third-best gainer in the S&P 500. ( It’s behind Super Micro, another AI company, and Vistra, an energy supplier also riding the wave of AI demand.)
So the pressure, once again, is on. While another big beat could push shares higher, a crash could do the opposite.
And analysts generally think Nvidia can meet or exceed those lofty expectations. Revenue is forecast to have grown 242% in the latest quarter – and that follows three-quarters of a triple-digit percentage increase in sales year over year.
Taking a step back, Piper Sandler’s Harsh Kumar highlighted in an earnings forecast note that data center chips and software – largely fueled by demand for AI training – accounted for 83% of revenue last quarter.
Five years ago, Nvidia’s market cap was less than $100 billion and it was primarily known for making video game chips before catching the crypto mining wave (a walk down memory lane requested by my co-anchor Josh Lipton). The transformation was extraordinary. And it was even named our Company of the Year in 2016.
This quarter may not blow away expectations, especially considering how much the stock has risen. Kumar writes that even if the company’s revenue exceeds $1.9 billion — following the trend of recent quarters — the shares will be “from flat to high.” Atif Malik of Citi writes: “We expect lower results relative to previous quarters in higher numbers.”
But it was KeyBanc’s John Vinh who really caught my attention with yet another great number. It expects data center revenue to rise to $200 billion in calendar 2025. That would represent a 321% increase over 2023.
Let’s put into perspective how unusual it is for a company of this size to grow so much. Tesla sales increased 387% in 2013 – to just over $2 billion. Amazon hasn’t seen triple-digit growth since 1998, when revenue grew 313% to $610 million.
In other words, Nvidia’s size relative to growth is almost unprecedented.
That’s why, as stocks continue to rise, investors continue to ask, “How long can this last?”
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