The artificial intelligence (AI) chip leader’s earnings beats have gotten larger since generative AI entered the tech scene.
Artificial intelligence (AI) giant Nvidia (NVDA 1.46%) is slated to report its results for the second quarter of fiscal 2025 (ended July 28, 2024) on Wednesday, Aug. 28, after the market close.
Nvidia’s upcoming earnings release is widely considered the most anticipated of this quarterly earnings season. That’s because the company is viewed as a bellwether, or indicator, for the AI space and the overall market.
Nvidia dominates the rapidly growing AI chip market. If it delivers stronger-than-expected results — particularly in its AI-driven data center business — that suggests the broad AI market is probably more robust than widely believed.
Nvidia stock’s performance has also become an indicator of the likely strength of the overall market. Nvidia is the second-largest stock on the S&P 500 index (behind Apple) and has been skyrocketing since early 2023, so it’s been a huge 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 Q2 guidance and Wall Street’s estimates
| Metric | Q2 Fiscal 2024 Result | Nvidia’s Q2 Fiscal 2025 Guidance | Nvidia’s Projected Growth | Wall Street’s Q2 Fiscal 2025 Consensus Estimate | Wall Street’s Projected Growth |
|---|---|---|---|---|---|
| Revenue | $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! Finance. Fiscal Q2 2025 ended July 28, 2024. *Reflects 10-for-1 stock split in June 2024. **Reflects the 10-for-1 stock split; calculation by the author based on the metrics for which management provided guidance.
Nvidia has a fantastic track record of exceeding Wall Street’s earnings estimates, so the probability that it will do so on Wednesday seems high.
How strong is that track record?
Nvidia’s earnings beat/miss track record
I reviewed Nvidia’s quarterly results for the last four years, so 16 quarters. This data goes back to the second quarter of fiscal 2021, which ended in late July 2020. Below is the summary.
| Period | Period Description | Earnings* Results Relative to Wall Street’s Consensus Estimate | Magnitude of Earnings Beat (Average) | Magnitude of Earnings Beat (Range) |
|---|---|---|---|---|
| Most recently reported 16 quarters | Full data set | 14/16 beats = 88% | 12% |
5% to 32% |
| 11 quarters, starting six quarters ago and going back | Data set period prior to generative AI being called out as a major growth driver | 9/11 beats = 82% | 8% | 5% to 14% |
| Most recently reported five quarters | Period in which generative AI has been a major growth driver | 5/5 beats = 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 home in on the five-quarter period in which generative AI (the tech behind Open AI’s ChatGPT and other chatbots) became a major growth driver. Stock price movements are also included.
| Quarter | Period Ending | Magnitude of Earnings Beat/(Miss) | Stock Price Change Day After Earnings Release |
|---|---|---|---|
| Q1 Fiscal 2025 | Late April 2024 | 10% | 9.3% |
| Q4 Fiscal 2024 | Late January 2024 | 12% | 16.4% |
| Q3 Fiscal 2024 | Late October 2023 | 19% |
(2.5%) |
| Q2 Fiscal 2024 | Late July 2023 | 32% |
0.1% |
| Q1 Fiscal 2024 | Late April 2023 | 18% |
24.4% |
Data sources: Nvidia’s earnings reports, Yahoo! Finance, and YCharts.
Key takeaways:
- Nvidia has exceeded Wall Street’s earnings estimate in every quarter since generative AI became a major growth driver.
- Nvidia’s earnings beats, on average, have become larger in, let’s call it, the generative AI era.
Prediction: Nvidia will surpass Wall Street’s earnings estimate by at least 10%
Last quarter, Nvidia beat the Street’s earnings estimate by 10%. In the last five quarters — the generative AI era — the company’s earnings beat has generally decreased in size: 10% (most recent), 12%, 19%, 32%, and 18%. So, I’m using the smallest earnings beat as my prediction. I’m using the smallest and not, say, the average because of the trend in the data.
The bigger picture: Nvidia stock is likely not as pricey as it might seem
Since generative AI entered the scene, Nvidia’s earnings beats have become notably bigger (averaging 18%). I think this trend will continue.
The data in this article weakens the argument that goes something like: “Nvidia stock is overvalued because its forward price-to-earnings (P/E) ratio is X.” (The forward P/E is 46.2, as of Aug. 26.) A forward P/E uses an estimate for the earnings value, generally Wall Street’s. And those estimates are likely notably too low, which inflates the forward P/E.
