It’s been called the "most important tech earnings in years.” Whether or not the claim from famous tech bull Dan Ives was hyperbole, there’s no doubt, as he put it, that “the popcorn [is] getting ready.” Wall Street is expecting another blowout quarter from the world’s premier chip stock, and Wednesday’s results have the potential to boost a sector-wide rally—or, if the company comes up short, cause stocks to tumble.
Nvidia’s earnings are a referendum on both AI investment and the semiconductor industry, multiple industry analysts told Fortune, because of the company's dominant position producing the advanced graphic processing units, or GPUs, at the heart of the AI boom. Nvidia’s breakneck growth will inevitably decelerate, they added (year-on-year growth over 250% isn’t sustainable forever!) Risks ranging from competitive to macroeconomic to geopolitical loom in the coming years, but the good times should at least endure for now.
“The bottom line is they're shipping to clients, mainly Microsoft, [Amazon Web Services] and Meta, as much as they can manufacture,” said Ted Mortonson, a managing director and technology desk sector strategist at Baird. “They’re going to have another unbelievable quarter.”
The Gen AI wave has rapidly made Nvidia one of the world’s most powerful companies. Revenue jumped 262% to over $26 billion last quarter, beating expectations by over $1 billion, compared to just over $7 billion the year before. The company is now the second-largest company in the U.S. by market cap, which has grown nearly $2 trillion this past year to just north of $3.1 trillion.
This has allowed investors to reap massive gains. The stock has grown over 166% year-to-date, trading above the $128 mark at Tuesday’s close. Investors who have held the stock over the past five years have seen shares gain roughly 3,000%, nearly doubling their investment year-over-year.
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The company’s broader impact on the overall market has also been staggering. As Big Tech dragged the S&P 500 to record highs during the first half of the year, Nvidia accounted for nearly 30% of the index’s total return during that span.
From an earnings perspective, though, Nvidia will inevitably soon become a victim of its own success. Even Wall Street’s AI darling will run up against the law of large numbers.
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“These comparisons are biblical,” Mortonson said. “I have never seen a company for the last year exceed expectations to this degree, and it's not Nvidia's fault. They're just running into brutally tough comparisons.”
This deceleration, however, is already partially baked into the stock price, according to Angelo Zino, a senior vice president and tech equity analyst at CFRA Research.
“When you look at the valuation of this company,” he said, “it's trading at a big discount to where it actually historically trades at.”
At its last earnings call, Nvidia forecast revenue of $28 billion, still well over double last year’s number, with the Street expecting the chipmaker to beat its own guidance by over $800 million.
Whether or not the company meets those estimates will be viewed by many as a barometer for the state of both AI investment and the semiconductor industry overall. Given the supremacy of Nvidia’s H100 GPUs, eventually set to be replaced by its next generation Blackwell line, they’re basically a proxy for demand, Zino noted, across the AI spectrum.
“Nvidia is kind of perceived as the center of the universe when it comes to this AI trade,” he said.
Fortunately for chip makers, the tech giants feel compelled to spend on AI like “drunken sailors,” as Mortonson put it, a phenomenon he and Zino don’t see slowing much over the next year. With Nvidia getting more orders than it can fill, semiconductor companies like Micron, Marvell and Broadcom also stand to benefit.
“The big takeaway is what's good for Nvidia is typically good for a lot of the other chip makers that kind of sell into the data center space,” Zino said.
As if investors didn’t already have enough reasons to tune in.
This story was originally featured on Fortune.com