/Nvidia%20logo%20on%20phone%20screen%20with%20stock%20chart%20by%20xalien%20via%20Shutterstock.jpg)
Nvidia (NVDA) will release its second quarter (Q2) fiscal 2025 earnings on Wednesday, Aug. 28. Recently, Nvidia stock came under pressure, correcting nearly 26% from its 52-week high and declining by about 20% in just one month. Macro uncertainty, a broader selloff in tech stocks, and valuation concerns all weighed on Nvidia stock.
Further compounding these challenges, media reports have highlighted a potential delay in the launch of Nvidia’s next-generation Blackwell platform due to design issues, a development seemingly confirmed today by the latest earnings report from Super Micro Computer (SMCI). This possible setback, coupled with the current negative sentiment around Nvidia, raises the question: should investors buy the dip in Nvidia stock ahead of earnings?
Let’s delve into the key factors to determine whether going long on Nvidia stock is a wise move or if a more cautious approach is warranted.
Data Center to Drive Q3 Financials
Despite macro and geopolitical challenges, artificial intelligence (AI)-led demand remains strong, which will likely boost Nvidia’s Data Center revenues significantly and its overall financials in Q2.
In Q1 of fiscal 2025, Nvidia reported Data Center revenue of $22.6 billion, a sequential increase of 23% and a staggering year-on-year rise of 427%. This impressive growth was fueled by strong demand for the NVIDIA Hopper GPU computing platform, with compute revenue growing over fivefold and networking revenue tripling compared to the previous year.
This growth trajectory is expected to continue into Q2. Nvidia’s management has projected total revenue of approximately $28 billion for Q2, indicating a 107% year-over-year improvement. They anticipate sequential growth across all market platforms, with Data Center revenues being a primary driver.
Notably, Nvidia’s Graphics Processing Units (GPUs) are essential to many advanced generative AI applications. Further, consumer internet companies and enterprises, which account for about 50% of Data Center revenues, are ramping up their AI investments. These developments bode well for future growth. Consequently, Nvidia's Data Center compute revenue could deliver massive growth in Q2.
The accelerating demand for generative AI training and inference on the Hopper platform is a key factor supporting Nvidia’s top-line growth. Adding to the optimism, Nvidia’s leadership highlighted during the Q1 conference call the extraordinary demand for GPUs in Data Centers. Applications such as ChatGPT, GPT-4, and other multimodal AI systems are rapidly consuming available GPU resources. Additionally, a surge in generative AI startups is further driving demand.
Beyond cloud service providers, generative AI is making inroads into various other sectors, spanning consumer internet companies, enterprises, sovereign AI projects, automotive sectors, and healthcare. This expansion creates a multibillion-dollar market for the company.
In summary, Nvidia’s strong position in the AI market and continued demand for its GPUs are set to drive substantial revenue growth. Higher sales and margin expansion will cushion its earnings per share (EPS), which analysts expect to more than double in Q2.
Nvidia has exceeded analysts’ earnings forecast by an average of 23.99% in the past four quarters. As for Q2, analysts expect Nvidia to report earnings of $0.59 per share, up 136% year-over-year. Given the solid momentum in its business and margin expansion, Nvidia could once again deliver better-than-expected bottom-line results in Q2.
Blackwell Delay Won't Impact Q2
During the Q1 conference call, Nvidia’s management confirmed that the Blackwell platform is in full production, with shipments beginning in Q2 and ramping up in Q3. Nvidia’s leadership indicated that significant Blackwell revenue is anticipated this year. However, there are now concerns about a potential delay in the launch of the next-generation Blackwell platform, which could impact future performance.
Despite this potential setback, Nvidia’s Q2 financials and competitive positioning remain solid. Strong demand from cloud service providers, consumer internet companies, and enterprises could continue to support its growth. Further, Nvidia’s other products will likely enable the company to mitigate any revenue impact from the Blackwell delay.
Nvidia Enhances Shareholders’ Value
Nvidia’s solid financial performance has allowed the chip giant to return more cash to its shareholders. In Q1, Nvidia returned $7.8 billion to shareholders through share buybacks and cash dividends. Additionally, the company increased its dividend by 150%.
At the end of Q1, Nvidia had over $31 billion in cash, and it generated $14.9 billion in free cash flow. Its solid financials and robust cash flow suggest that Nvidia can continue to enhance shareholder value through dividends and share repurchases.
Analysts Are Upbeat on Nvidia Stock
Analysts are optimistic about Nvidia stock ahead of Q2 earnings, and most of them suggest buying NVDA shares near the current market price.
Among 39 experts covering NVDA, 33 recommend a “strong buy,” two suggest a “moderate buy,” and four have a “hold.” Overall, Nvidia stock has a consensus rating of “strong buy.”
The average price target for NVDA is $141.29, implying a roughly 40% potential upside from recent levels.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
