Top artificial intelligence chip supplier Nvidia reported first-quarter earnings after the close on Wednesday, with Wall Street expecting some deceleration after previously strong growth.
Still, the numbers are set to explode in the quarter ending in April, as data centers used to generate artificial intelligence remain in high demand for their chips.
Analysts polled by FactSet expected earnings per share to surge 474% to $5.22 and revenue to grow 241% to $24.5 billion. That would be down from last quarter’s 765% earnings growth and 265% revenue growth.
Meanwhile, the stock is up 87% so far in 2024, and is up about 200% from a year ago. Nvidia is currently the third most valuable company in the world, with a market value of US$2.3 trillion, second only to Apple and Microsoft. But the stock price has been essentially flat over the past two months.
Nvidia launched new Blackwell chips in March, prompting some analysts to expect a slower transition from the older H100 chips to next-generation models, which are expected to be publicly available later this year.
Bank of America analysts pointed to this deceleration as a potential source of volatility in Nvidia stock following the earnings release, in a note Thursday.
While Bank of America believes Nvidia’s reported numbers are strong compared to Wall Street consensus, analysts expect the company’s second-quarter guidance to post sequential growth below 10% for the first time.
At the same time, it expects gross profit margin to shrink from about 77% in the first quarter to a “more normalized” range of 75%-76% in the next quarter.
“However, even if NVDA is likely to meet these bullish expectations, the stock could still react adversely as bears may complain that: 1) NVDA’s quarter-over-quarter sales growth will decelerate to “only” 7-7 in Q2 (July) The 8% outlook is well below the mid-teens or better of past quarters, 2) [gross margin] Peaks and declines are signs of pricing pressure, an unfavorable mix (more Chinese H20 shipments and/or more inference units), and slowing demand/easing supply,” the report said.
For its part, Bank of America is bullish on Nvidia, giving the stock a “buy” rating and a price target of $1,100, which suggests a 19% upside from Friday’s closing price.
Last month, analysts at Morgan Stanley were also bullish on Nvidia, saying there were no signs of a pause in growth during the transition to Blackwell chips and that underlying demand remained strong.
“NVDA continues to see strong spending trends in artificial intelligence, with upward revisions in demand from some new customers such as Tesla and various sovereign nations,” the analysts wrote.
Morgan Stanley expects Nvidia to maintain its market share despite growing competition from Intel, Huawei, Samsung and others.
It added: “Blackwell power generation pricing looks set to make a strong competitive statement – reducing enthusiasm for competing products.”
