Finance
Nvidia will beat Wall Street’s earnings forecast by 10% or more on Wednesday
Giant in the field of artificial intelligence (AI). Nvidia (NASDAQ: NVDA) is expected to release results for the second quarter of fiscal 2025 (ending July 28, 2024) on Wednesday, August 28, after market close.
Nvidia’s upcoming earnings release is widely considered the most anticipated of this quarterly earnings season. That’s because the company is seen as a bellwether or indicator for the AI space and the overall market.
Nvidia dominates the fast-growing AI chip market. If it delivers stronger-than-expected results – especially in the AI-driven data center business – that signals the broadside AI The market is probably more robust than generally believed.
The performance of Nvidia stock has also become an indicator of the likely strength of the overall market. Nvidia is the second largest stock in the market S&P500 index (after Apple) and has been surging since early 2023, so it has been a big driver of the index’s overall performance.
My two-part prediction is that (1) Nvidia will beat Wall Street’s earnings estimate, and (2) it will do so by at least 10%. We will get to where the 10% came from.
Nvidia’s second-quarter expectations and Wall Street estimates
|
Metric |
Result for the 2024 financial year |
Nvidia’s guidance for Q2 2025 |
Nvidia’s expected growth |
Wall Street consensus estimate for the second quarter of 2025 |
Wall Street’s expected growth |
|---|---|---|---|---|---|
|
Gain |
$13.51 billion |
$28 billion |
107% |
$28.68 billion |
112% |
|
Adjusted earnings per share (EPS) |
$0.27* |
$0.622** |
130% |
$0.64 |
137% |
Data sources: Nvidia and Yahoo! Finances. The second fiscal year of 2025 ended on July 28, 2024. * Reflects the 10-for-1 stock split in June 2024. ** Reflects the 10-for-1 stock split; calculation by the author based on the statistics for which management has provided guidelines.
Nvidia has a fantastic track record of beating Wall Street’s earnings expectations, so the odds of that happening on Wednesday seem high.
How strong is that track record?
Nvidia’s earnings beat/miss track record
I looked at Nvidia’s quarterly results for the past four years, so 16 quarters. This data goes back to the second quarter of fiscal year 2021, which ended at the end of July 2020. Below you will find the summary.
|
Period |
Period description |
Earnings results* versus Wall Street consensus estimate |
Magnitude of profit increase (average) |
Profit margin size (range) |
|---|---|---|---|---|
|
Most recently reported 16 quarters |
Complete data set |
14/16 strokes = 88% |
12% |
5% to 32% |
|
11 quarters, starting six quarters ago and going back |
Data collection period before generative AI was declared a major growth driver |
9/11 successes = 82% |
8% |
5% to 14% |
|
Most recently reported five quarters |
Period in which generative AI has been an important growth driver |
5/5 strokes = 100% |
18% |
10% to 32% |
Data source: Nvidia. Calculations by author. *Earnings in the form of adjusted earnings per share (EPS). AI = artificial intelligence.
Let’s look at the five-quarter period during which generative AI (the technology behind Open AI’s ChatGPT and other chatbots) became a major growth driver. Price movements of shares are also taken into account.
|
Quarter |
Period ends |
Size of profit correct/(wrong) |
Share price change day after earnings publication |
|---|---|---|---|
|
Q1 fiscal year 2025 |
End of April 2024 |
10% |
9.3% |
|
Q4 fiscal year 2024 |
End of January 2024 |
12% |
16.4% |
|
Q3 fiscal year 2024 |
End of October 2023 |
19% |
(2.5%) |
|
Q2 fiscal year 2024 |
End of July 2023 |
32% |
0.1% |
|
Q1 fiscal year 2024 |
End of April 2023 |
18% |
24.4% |
Data sources: Nvidia’s earnings reports, Yahoo! Finance and YCharts.
Key Takeaways:
-
Nvidia has surpassed Wall Street’s earnings estimate every quarter since generative AI became a major growth driver.
-
Nvidia’s earnings numbers have gotten bigger on average in, let’s call it, the generative AI era.
Prediction: Nvidia will beat Wall Street’s earnings estimate by at least 10%
Last quarter, Nvidia beat the Street’s earnings forecast by 10%. Over the past five quarters – the Generative AI era – the company’s profit margin has generally decreased in size: 10% (most recent), 12%, 19%, 32% and 18%. So I use the smallest profit margin as my prediction. I use the smallest and not, for example, the average because of the trend in the data.
The bigger picture: Nvidia stock probably isn’t as pricey as it seems
Since generative AI came along, Nvidia’s bottom line has increased significantly (18% on average). I think this trend will continue.
The data in this article weakens the argument that goes something like this: “Nvidia stock is overvalued because its forward price-to-earnings ratio (P/E) is X.” (The forward price-to-earnings ratio is 46.2, as of August 26.) A forward price-to-earnings ratio uses an earnings value estimate, usually Wall Street’s. And those estimates are likely noticeably too low, inflating the forward price-to-earnings ratio.
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Beth McKenna holds positions at Nvidia. The Motley Fool holds positions in and recommends Apple and Nvidia. The Motley Fool has one disclosure policy.
Prediction: Nvidia will beat Wall Street’s earnings forecast by 10% or more on Wednesday was originally published by The Motley Fool
