Third-quarter earnings season is almost over, but the main event is still to come, with Nvidia scheduled to release its fiscal third-quarter results after the market closes on Wednesday.
Nvidia stock has been roughly flat over the last three months as investor sentiment around the artificial intelligence trade sways from optimism to skepticism. Nvidia’s latest earnings could go a long way in settling the main debate from investors: just how durable is the AI infrastructure spending spree by large tech platforms.
Here are the four most important things to focus on as the numbers arrive:
Wall Street Expects Strong Results. Analysts estimate October-quarter revenue of $54.9 billion, up 57% versus the prior year, with adjusted earnings per share of $1.26. As for the current quarter outlook, Wall Street sees revenue of $62.17 billion, with EPS of $1.44.
There are several pieces of recent evidence suggesting that Nvidia’s business is doing well. Last month, C.C. Wei, the CEO of Taiwan Semiconductor Manufacturing, told analysts that demand for AI continues to be “very strong” – better than the company anticipated three months ago. TSMC is the primary chip manufacturer for Nvidia.
Later in October at the GTC D.C. conference, Nvidia CEO Jensen Huang said demand for the company’s AI chips was “exceptionally strong” and that the company had visibility on more than $500 billion of cumulative revenue through 2026 for its current Blackwell AI chips and upcoming Rubin chips. While it is hard to translate his remarks into precise revenue, Wall Street analysts said the outlook represented material upside to current forecasts.
AI Start-up Deals. Investors are going beyond financial numbers and increasingly looking at the long-term durability of demand.
On this topic, analysts will want more clarity on Nvidia’s agreement with market leader OpenAI. In September, the two companies announced a letter of intent on a new partnership in which Nvidia plans to invest as much as $100 billion in OpenAI to support the buildout of AI data center capacity. No additional details about the agreement or whether it has been finalized have been released since the announcement.
To add to the intrigue, Nvidia announced a deal on Tuesday with OpenAI’s main start-up rival, Anthropic, in which Nvidia has committed to invest up to $10 billion and collaborate with Anthropic to optimize the engineering and design of future chip architectures to run the startup’s models better. Microsoft, meanwhile, is investing up to $5 billion in Anthropic.
GPU Depreciation. Questions around AI accounting have suddenly become a focus of investors. Skeptics, including Michael Burry of Big Short fame, have publicly questioned whether technology companies are accurately reflecting the long-term economic value of the hardware by using six-year depreciation schedules for graphics processing units. Burry believes the useful lives of the chips are shorter than six years, which would mean larger-than-expected depreciation expenses over the next few years.
This week, Bernstein analyst Stacy Rasgon pushed back on the skepticism, noting that five-year old Nvidia A100 GPUs are still generating “comfortable” profit margins. GPUs can function for six to seven years, Rasgon said, citing his checks with industry sources.
Given the debate, it would be useful for Nvidia management to talk about the lifespan of their products during its earnings call.
Ignore the Volatility. Since Nvidia began its big run following the debut of ChatGPT in November 2022, the stock has soared more than ten times. Along the way, there have been several big declines.
As I’ve written around previous earnings reports, investors should focus on Nvidia’s underlying fundamentals. As long as AI models improve and new AI capabilities proliferate, demand for Nvidia’s GPUs should stay strong and drive shareholder returns.