Nvidia(NASDAQ: NVDA) is gearing up for the release of its second-quarter results on Aug. 28, and sentiment toward the stock on Wall Street has been moving in a bullish direction. In a note published Monday, Goldman Sachs analyst Toshiya Hari reiterated a buy rating on the artificial intelligence (AI) leader and maintained a price target of $135 per share on the stock.
At the time of the note's publication, Hari's target on the stock suggested potential upside of roughly 9%, but subsequent gains have pushed the implied upside down. Is Nvidia a worthwhile buy heading into its hotly anticipated earnings report?
Can Nvidia crush expectations again?
In addition to highlighting Nvidia's strong competitive positioning in AI and other accelerated computing applications, Goldman's latest note on Nvidia left the door open for a positive valuation revision coming out of the earnings report. With the first-quarter report that it published in May, Nvidia guided for roughly $28 billion in sales and a gross margin of 74.8% in the second quarter. The company also said that it expected non-GAAP (adjusted) operating expenses to come in at $2.8 billion for the period.
Over the last year, Nvidia has repeatedly delivered results that far exceeded both its own targets and Wall Street's. As a result, expectations are very high. For example, HSBC expects the tech leader to report revenue of $30 billion. Meanwhile, the average analyst estimate calls for the business to post $28.6 billion in sales.
Capital spending reports and guidance from Microsoft and other key customers suggest that there's a good chance that Nvidia will once again beat the average analyst estimates, but the stage may be set for valuation volatility in the near term. The AI front-runner may need to post revenue and earnings that come in significantly above the average Wall Street targets to trigger another big rally in the near term.
Nvidia still looks like a worthwhile buy ahead of earnings, but investors may want to use a dollar-cost-averaging strategy to minimize risk.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.
