NVIDIA, the prominent artificial intelligence chipmaker, just released its second-quarter earnings report after a boom year so far for its stock.
What’s happening?
- Nvidia, the prominent artificial intelligence chipmaker, just released its second-quarter earnings report.
- NVDA shares have soared immensely this year, paralleling the skyrocketing popularity of artificial intelligence.
Notably, Nvidia's chips are integral to the operations of generative AI, which can produce new content ranging from text to images, underpinning the functionality of AI services like ChatGPT.
FUN FACT
One of the first AI programs was created in 1965 by Carl Djerassi. It was named DENDRAL and it automatically discovered unknown forms of medications.
NVIDIA Earnings Summary
Nvidia, the chip manufacturer, saw a 5% increase in its share price during Thursday's morning trading session on Wall Street. This comes after the firm announced better-than-expected top and bottom-line figures and provided a promising outlook for the next quarter.
For the fiscal second quarter, Nvidia revealed an adjusted earnings per share of $2.70, surpassing the Refinitiv consensus projection of $2.09. Additionally, their quarterly revenue stood at $13.51 billion, compared to an anticipated $11.22 billion.
Analysts also emphasized the company's robust revenue projection for the forthcoming quarter. Nvidia forecasts roughly $16 billion for its fiscal third quarter, a significant 170% rise from the same period last year.
When the company unveiled its first-quarter results, they surpassed all expectations. Moreover, Jensen Huang, the CEO, hinted at bolstering supply to match the booming demand. In the midst of this anticipation, the stock recently peaked at $481 but has since burst through $500.
NVIDIA Stock Price Forecast
Source: TradingView FlowBank
After enduring a significant decline in 2022, mirroring the downturn experienced by the Nasdaq Composite and other tech stocks, NVIDIA rebounded in an impressive fashion. In October 2022, the stock found its floor alongside the broader market and embarked on a spirited rally. This culminated in the stock achieving a fresh all-time high of around $480 before pulling back to $400 before once again testing all-time highs.
Such resilience underscores NVIDIA's robustness, even in turbulent market conditions. But as past performance has shown, the stock is no stranger to substantial moves post-earnings releases.
One of the few tools that can provide a useful upside target to stocks in an uptrend is the Fibonacci extension. Taking the extension from the 2020 low to the 2022 high down to the 2022 low, the first upside target of 410 was hit, and the next target at 493 was narrowly missed. Should the uptrend continue, 597 is the next target based on the 1.618 Extension.
Upside potential for NVIDIA
Blowout earnings: Given the surging trend in artificial intelligence, Nvidia's projections are astounding. Their earnings are poised to spike by 116% in 2024 in comparison to 2023, with a further growth of 39% expected in 2025. This means their earnings per share might escalate to $10.04 in 2025 from a mere $1.45 in 2020. Such exponential growth within half a decade is exactly what delights growth investors.
Strong momentum: Nvidia's remarkable performance, with a staggering 212% surge in shares this year, has led the gains among the "Magnificent Seven" stocks, which comprises giants like Apple, Meta, and Microsoft. They even touched the $1 trillion market cap in May, an accolade only eight other companies hold.
Downside risks
However, it's not all rosy. Any slips in Nvidia's earnings could plummet its stock value and potentially impact other tech stocks. The volatility of Nvidia shares after earnings announcements cannot be overlooked. With the broader tech market showing signs of fatigue and factors like weak retail earnings and high Treasury yields exerting pressure, the stakes are high.
Supply Chain Complications: While NVIDIA's prospects seem largely optimistic, looming supply chain issues could temper this outlook. The capacity constraints related to chip-on-wafer-on-substrate (CoWoS), an essential element in AI chipmaking, present a significant challenge. This high-end packaging technology has seen an unprecedented demand spike this year, with behemoths like NVIDIA, Broadcom, and Amazon escalating production to cater to the booming end-market interest.
Dependency on External Vendors: Taiwan Semiconductor, the globe's premier chip contractor, has grappled with the surging demand, causing potential bottlenecks in production and supply. NVIDIA, despite securing a sizable 40% of TSMC's CoWoS capacity for the year, has been compelled to diversify its sourcing. They've had to turn to alternative providers like the Arizona-based Amkor Technology and Taiwan's United Microelectronics Corp (UMC) to ensure they meet the demand.
In Summary
As AI continues to shape the future, Nvidia's performance has the potential to sway the tech market's trajectory.
While NVIDIA's trajectory in the AI domain appears poised for impressive growth, potential supply chain hiccups could introduce uncertainties in their path. Investors should closely monitor the balance of these upside and downside potentials in the coming months.
