Nvidia Q2 Earnings Preview: AI To Boost Revenue Growth, But Can NVDA Sustain Its Momentum?

Nvidia will release its earnings report for the second quarter on Aug. 28, 2024, and the artificial intelligence (AI) chip leader is expected to deliver another strong quarter, driven by surging demand for its AI-powered GPUs across various industries.

As the leading player in the AI chip market, Nvidia’s earnings are closely watched by investors and analysts alike.

With major cloud providers like Amazon, Microsoft, and Google increasing their investments in AI infrastructure, the demand for Nvidia’s chips will remain robust. However, some challenges remain.

What To Expect?

Nvidia’s data center segment, which includes GPUs, networking gear, and AI software, is poised for continued growth. In fact, major cloud providers like Amazon AWS, Microsoft Azure, and Google Cloud are increasingly adopting Nvidia chips for AI workloads.

A key revenue driver is the strong demand for Nvidia’s latest GPUs for gaming and creative applications.

Additionally, the company’s automotive computing platforms are gaining traction with electric and autonomous vehicle manufacturers.

Its Omniverse 3D simulation platform has experienced triple-digit customer growth in the past year. This indicates potential future gains in enterprise software.

Based in Santa Clara, California, Nvidia Corporation (NVDA) is a leading technology company specializing in graphics processing units and AI solutions.

With a market cap of $2.74 trillion, Nvidia is renowned for its cutting-edge innovations in gaming, data centers, and AI-driven applications.

Ahead of the company’s fiscal Q2 earnings report on Aug. 28, analysts expect  Nvidia to report a profit of $0.59 per share, up 136% from the previous year.

The company has consistently exceeded market expectations in its recent earnings reports, driven by surging demand for generative AI in data centers. For fiscal 2025, analysts forecast EPS of $2.53, representing a 114% increase from the prior year.

Why Revenue Are Seen Up

Over the past year, Nvidia has experienced significant demand growth across its various end markets, particularly data centers and gaming.

The adoption of AI and machine learning has fueled robust sales of Nvidia’s specialized GPUs and networking products, while the increasing migration of workloads to the cloud has further benefited the company.

Additionally, Nvidia’s gaming segment continues to thrive, driven by the rise of eSports, game streaming services, and the steady release of blockbuster titles optimized for Nvidia hardware.

Nvidia’s data center segment is poised for continued growth  as major cloud providers like Amazon AWS, Microsoft Azure, and Google Cloud rapidly adopt Nvidia chips to power AI workloads.

Strong demand for Nvidia’s latest GPUs for gaming and creative applications will remain a key driver of revenue growth.

Moreover, Nvidia’s automotive computing platforms are gaining traction with electric and autonomous vehicle manufacturers.

Its Omniverse 3D simulation platform has also experienced triple-digit customer growth in the past year, indicating future potential in enterprise software.

Top Nvidia’s Clients To Spend $200 Billion

Tech giants Microsoft, Meta, Amazon, and Google are significantly increasing their investments in AI infrastructure.

Google’s parent company, Alphabet, has announced that its future capital expenditures (capex) will be at least $12 billion per quarter.

Microsoft, a major Nvidia customer, reported a 75% increase in capex for the past fiscal year, reaching $55.7 billion.

The company expects even higher spending in the coming year to meet the growing demand for its AI and cloud products.

Meta has also indicated substantial increases in capex for 2025 to support its AI research and product development.

These investments seem to be paying off. In fact, Meta’s recent revenue guidance exceeded expectations. This was due to robust advertising growth, partly driven by AI-optimized ad targeting.

Amazon also anticipated higher capital spending in the second half of the year. This will primarily expand its AWS infrastructure to accommodate the surge in generative and non-generative AI workloads.

JPMorgan estimates  these four tech giants will collectively spend around $200 billion on capex this year. And AI development will be a major driver. This trend will likely benefit Nvidia, a key supplier of AI hardware.

Customers Make Money On Nvidia’s Chips

Despite the massive investments in Nvidia’s AI chips, concerns about the tangible benefits for end-user companies are growing.

Bank of America recently noted that investors may soon question the near-term economics of these investments.

This is due to the lack of substantial revenue growth. While the computing power of Nvidia’s chips is undeniable, the bank suggests that investors may become skeptical. In particular, after the initial hype surrounding the latest products subsides.

However, Goldman Sachs analysts believe that Nvidia will emphasize the profits generated by its end users through the increased adoption of AI-enabled GPU chips.

“In order to assist investors in appreciating customers’ ROI profiles, similar to how they shared data from Meta on their most recent earnings call, they intend to provide ROI metrics from customers on its next earnings call as it aims to instill confidence in investors,” Goldman Sachs said .

In its latest earnings call, Nvidia revealed that for every $1 spent on its HGX H200 servers, an API provider supporting Meta’s Llama 3 tokens could generate $7 in revenue over four years.

Potential Challenges

Supply chain constraints, while improving, could still limit Nvidia’s upside potential. Persistent foundry and component shortages may hinder the company’s ability to meet elevated demand, potentially disappointing investors.

A PC market slowdown driven by challenging macroeconomic conditions could weaken performance in the graphics segment, dampening overall earnings growth.

Economic uncertainty could also curb business spending, disproportionately affecting Nvidia’s data center and enterprise segments.

Increasing competition from companies like AMD and Intel, as well as big tech and automotive firms developing their own AI chips, could potentially reduce demand for Nvidia’s offerings.

Despite these risks, Wall Street remains optimistic about Nvidia stock heading into the Q2 earnings report. Investors’ focus will be on Nvidia’s long-term potential in AI, high-performance computing, autonomous vehicles, and the metaverse. Success in these areas may drive share price momentum post-earnings.