All eyes are again turning to Nvidia (NASDAQ: NVDA) this week.
The artificial intelligence (AI) chip superstar is set to report its results for fiscal 2025's second quarter (which ended July 28) after hours on Wednesday, Aug. 28. As with the last several quarterly reports, the results are highly anticipated.
Nvidia is getting a lot more attention these days because of its leadership role in the generative AI revolution. The launch of OpenAI's ChatGPT accelerated the demand for graphics processing units (GPUs) and other more advanced components that many companies use to run complex AI models.
There's a lot of speculation around the upcoming earnings report as Nvidia's results are likely to heavily influence whether the stock market, driven by the AI boom, continues its upward swing or whether it pulls back on concerns about a potential AI bubble.
It's impossible to consistently predict a company's quarterly results or the market's reaction to them, but Nvidia stock watchers have one advantage: Most of its big tech peers have already reported second-quarter earnings and the CEOs of these companies provided commentary on the state of play in the emerging AI industry. For investors, there were some key insights that offer hints about Nvidia's performance in the second quarter.
Demand for Nvidia products is alive and well
While there were some concerns in the stock market that AI stocks could be entering a bubble, especially when shares of Nvidia and its peers fell sharply in July through early August, it's clear that there's still a shortage of Nvidia components as companies rapidly add and expand new data centers.
Speaking on Tesla's second-quarter earnings call on July 23, CEO Elon Musk not only paid Nvidia a high compliment but underscored the limited supply of its product, saying:
I should preface this by saying I'm incredibly impressed by Nvidia's execution and the capability of their hardware. And what we are seeing is that the demand for Nvidia hardware is so high that it's often to difficult to get the GPUs. I guess I'm quite concerned about actually being able to get ... Nvidia GPUs and when we want them.
There's little doubt from Musk's statement that the supply/demand imbalance that has made prices for Nvidia hardware soar and its sales spike persisted through the second quarter.
Similarly, Meta Platforms CEO Mark Zuckerberg offered his thoughts on the evolving AI market on the July 31 earnings call, saying, "We expect that having sufficient compute capacity will be central to many of these opportunities, so we are investing meaningfully in infrastructure to support or core AI work, in content ranking and ads, as well as our generative AI and advanced research efforts."
Phrases like "having sufficient compute capacity" and "investing meaningfully in (AI) infrastructure" essentially mean "buying Nvidia components."
Meta CFO Susan Li also made it clear that this trend would only continue to grow as she said, "Our expectation, obviously again, is that we are going to significantly increase our investments in AI infrastructure next year," which bodes well for Nvidia.
Zuckerberg elaborated on his thinking and that of many of his peers during a podcast interview with a Bloomberg reporter. He acknowledged that there was a risk of overspending on AI infrastructure, but added that the bigger risk was underinvesting, "because the downside of being behind is that you're out of position for like the most important technology for the next 10 to 15 years."
Alphabet CEO Sundar Pichai echoed that sentiment, saying on the company's recent earnings call, "When we go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here."
Is Nvidia a buy before its earnings report?
For Nvidia investors, the statements above should offer some reassurance that business continued to boom in the fiscal second quarter as financial reports and statements from the "Magnificent Seven" companies indicated that spending on AI infrastructure continued to soar and tech giants like Meta Platforms expect it to continue to do so into next year.
Whether Nvidia stock gains on its earnings report will depend on how its results compare to analyst estimates. Currently, the average Wall Street analyst expects revenue of $25.64 billion in the quarter, up 90% from the quarter a year ago, and calls for adjusted earnings per share to jump from $1.19 in fiscal 2024's Q2 to $2.45.
The CEO statements above aren't a guarantee that Nvidia will rise on its earnings report, but they do offer strong evidence that the AI chip titan has a bright future ahead of it as the big tech companies all intend to keep buying its product.
That's reason enough to buy Nvidia stock before earnings, regardless of how it moves on Thursday.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
Should You Buy Nvidia Before Aug. 28? Here's What the Billionaire CEOs Are Saying. was originally published by The Motley Fool