On Wednesday, Nov. 20, the entire investment community will be anxiously awaiting one critical piece of news. No, I'm not talking about a Federal Reserve meeting or an update regarding jobs growth. Next week the poster child of artificial intelligence (AI), Nvidia(NASDAQ: NVDA), is scheduled to report third-quarter earnings results.
I've said this many times before, but just to reiterate my stance on Nvidia, I see the company as the ultimate measuring stick for the health of the AI market. If Nvidia reports positive news (which tends to be the case), an upward movement in the stock has the power to positively impact the entire capital markets.
I'm going to break down what's on the line for Nvidia at the moment and explain why this upcoming earnings report is so important. Moreover, I'll share some recent analyst price targets that have been published as the earnings report approaches.
Wall Street is bullish before Nvidia even reports earnings
Generally speaking, equity research analysts use quarterly earnings reports as a chance to speak with management teams and assess the current picture -- from catalysts to operational challenges, and everything in between.
Subsequently, investment banks tend to release updated reports and price targets estimates based on their analysts' research. While some analysts will publish an updated investor note before an earnings call, it's not too common.
However, just this week analysts from Morgan Stanley and UBS raised their price targets on Nvidia stock to $160 and $185, respectively -- implying upside between approximately 10% and 28% as of market close on Nov. 11.
Image source: Getty Images.
What should investors be on the lookout for?
During a typical earnings report, investors tend to focus on metrics such as revenue, gross margin, and profitability. But Nvidia's earnings report next week is going to be anything but typical.
Over the last several weeks, Nvidia's cohorts among big tech have made it clear that additional investment in AI infrastructure is on the horizon. Dan Ives of Wedbush Securities is even calling for more than $1 trillion in AI capital expenditures (capex) over the next few years. In some ways, investors could interpret this capex spending cycle as a proxy for Nvidia's growth prospects.
The big question investors should be looking to answer is just how much of a tailwind will these increased infrastructure investments represent for Nvidia? This is where management's financial guidance comes into play.
The big talking point on next week's earnings call is going to be the launch of Nvidia's new Blackwell GPU. Morgan Stanley is projecting sales from Blackwell to be at least $10 billion this year, and Nvidia CEO Jensen Huang has more than suggested than demand for these new chipsets is already outpacing supply.
While this all bodes well for Nvidia, keep in mind that the company is rumored to be moving order flow away from one its key partners, Super Micro Computer, as challenges at the IT architecture specialist continue to mount.
At the risk of coming across a little jaded, I'm suspicious of Blackwell's current momentum. While I think these new GPUs will become a smash success for Nvidia, I can't help but feel that any operational hiccup related to manufacturing and production could put a dent in the Nvidia rocket ship in the near term.
I can't help but think of Warren Buffett right now
One of Warren Buffett's most famous adages is to be fearful when others are greedy, and to be greedy when others are fearful. In my eyes, investors may be getting a little greedy with Nvidia stock. Take a look at the timeline below to understand my reasoning:
- Nov. 30, 2022: This is the day OpenAI released ChatGPT to the public. Since then, shares of Nvidia have gained 758%.
- Last 12 months: Over the last year, Nvidia stock has risen by 205%.
- Year to date 2024: Through mid-November, Nvidia stock is up 198% this year.
In my opinion, I think Nvidia stock will likely rise following its earnings report next week. But I'm far less concerned about a short-term jolt and much more focused on the long-term narrative. In my eyes, AI is here to stay and Nvidia will likely continue to be a prominent pillar supporting artificial intelligence.
But when you consider the price changes above, I'm hard-pressed buying into the notion that Nvidia stock could rise by several hundred percentage points again. As I wrote recently, Nvidia stock is starting to exude the qualities of a lucrative trade as opposed to a long-term buy-and-hold position.
With all of this in mind, I'm more comfortable listening to Huang and the team next week and determining if adding to my Nvidia position makes sense after that.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
