Nvidia: is the stock priced to perfection?
Artificial intelligence powerhouse Nvidia's stock has risen over 236% in the last year
Is Nvidia on track to be the Magnificent One?
Barron Roundtable panelists Ben Levisohn, Al Root and Elizabeth OBrien discuss how Nvidias earnings report will impact the markets.
Tech giant Nvidia is set to report its fourth-quarter earnings after the bell on Wednesday with investors wondering whether it will be able to maintain the surge in growth that has pushed its stock price to record heights in the last year.
Nvidia's rise has been linked to optimism surrounding the emergence of artificial intelligence (AI) technologies given the company's role in designing graphics processing units (GPUs) and high-end computer chips used to power large language models and generative AI tools. Nvidia controls about 80% of the market share for advanced AI chips.
The Santa Clara, California-based company's stock is up over 44% year to date and has risen more than 236% in the past year from $206.55 a share on Feb. 21, 2023 to $694.52 a share as of Tuesday's close.
The company's ascent amid the AI boom made it the third-largest publicly traded U.S. company by market cap last week after it surpassed Google's parent company Alphabet and e-commerce giant Amazon – though a sell-off on Tuesday brought Nvidia back below those levels. Microsoft and Apple are the only public U.S. companies that have larger market caps than that tech trio.
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Nvidia's stock has soared to record heights over the last year amid the AI boom. (Photographer: Michaela Vatcheva/Bloomberg via Getty Images / Getty Images)
Uncertainty about Nvidia's upcoming earnings report and the sustainability of its massive growth prompted a sell-off on Tuesday that dropped Nvidia's market cap to $1.72 trillion, an amount that is just below Alphabet's $1.76 trillion and Amazon's $1.74 trillion.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| NVDA | NVIDIA CORP. | 141.95 | -4.72 | -3.22% |
Nvidia's stock price dropped by over 4.3% during Tuesday's session, and that dip continued in after-hours trading with a further decline of more than 1.9% to $680.90 a share – a level Nvidia last traded at in early February and about 7.9% below its all-time closing high of $739 a share on Feb. 14 last week.
"The market is maybe a little bit hesitant whether [Nvidia] can deliver a strong enough guidance to reinvigorate the market even higher," Frank Lee, head of technology research at HSBC, told Reuters.
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Nvidia's earnings report will be closely watched for the company's dominant role in powering AI tools. (REUTERS/Tyrone Siu / Reuters Photos)
Analysts are expecting Nvidia to announce earnings of $4.56 a share with revenue rising to nearly $20.4 billion from just over $6 billion a year ago, according to LSEG estimates.
In recent earnings reports, Nvidia's earnings per share (EPS) and revenue have beat analysts' estimates by double-digit percentage points margins. For example, its October 2023 earnings report beat the estimates for EPS by 18.7% and revenue by nearly 12.5%, while the prior earnings report released in July beat estimates by roughly 29.4% and 21.9%, respectively.
"While [Wall Street] across the board is anticipating another major ‘beat and raise’ special from Jensen & Co., it's all about the pace of data center artificial intelligence-driven spending, as the only game in town for GPUs to run generative AI applications all go through Nvidia," Wedbush Securities analyst Dan Ives wrote in a note to clients.
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Jensen Huang, co-founder and chief executive officer of Nvidia Corp., speaks during the Taipei Computex expo in Taipei, Taiwan, on Monday, May 29, 2023. (Photographer: I-Hwa Cheng/Bloomberg via Getty Images / Getty Images)
Those lofty results fueled significant growth in Nvidia's stock price in the wake of the earnings release and have contributed to concerns that if Nvidia's results do not far outpace expectations, it could leave the stock vulnerable.
"You can't come out and simply meet or slightly beat for the stock to go higher, Nvidia's going to need to blow it away," Dennis Dick, a trader at Triple D Trading, told Reuters.
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Investors are preparing for potentially large swings in its stock in either direction following the results, with data from options analytics service ORATS showing Nvidia options are pricing a swing of about 11% in either direction post-earnings.
Reuters contributed to this report.