With the end of the US presidential election and the fading of the 'Trump frenzy', the US stock market is about to usher in another heavyweight 'barometer'. AI leader Nvidia will disclose its third quarter financial report after Wednesday Eastern Time (early Thursday morning Beijing Time), which will also be its first financial report since being included in the Dow Jones Industrial Average.
As the market anxiously awaited this financial report, Nvidia closed up nearly 5% on Tuesday. Wall Street analysts generally expect the quarterly sales of this chip manufacturer to reach $33.1 billion, a 10% increase from the previous quarter and an 83% increase from the same period last year.
In addition, for market participants, gross profit margin is still under focus. Matt Weller, Global Research Director at Jiasheng Group, predicts that the gross profit margin for the third quarter will decrease to 75%, and even predicts that it may drop to 73% in the following quarters.
He pointed out, "Although this profit margin is still objectively high and enviable, the market's expectations are higher, which requires Nvidia to demonstrate stable profit margins or increased sales to balance it out
The question of whether profit margins are in a permanent downward trend or can recover remains uncertain. Regulatory risks pose challenges, and intensified competition is also one of them, which may force Nvidia to adjust its pricing strategy, "he added.
Why is Wall Street so concerned?
How important is this financial report? Wall Street analysts generally believe that this financial report is related to whether the bull market hyped by artificial intelligence (AI) is still supported or whether the AI foam is about to burst.
Bank of America commented that compared to the next non farm payroll data, CPI, or Federal Reserve meeting, the profitability of the chip manufacturer may pose a greater risk to the S&P 500 index. Nvidia's latest performance report may determine the recent trend of the US stock market.
Dan Ives, a well-known analyst at Wedbush, a US investment bank, wrote in the latest report released on Tuesday: "We expect the godfather of artificial intelligence, Huang Renxun (CEO of Nvidia), to bring another shocking event tomorrow, injecting momentum into the bull market engine
But just as a coin has both sides, if an event itself has a positive impact, there will be a negative one. Matt Weller from Jiasheng pointed out in the latest report that the results delivered by Nvidia may not be enough to be just 'good'.
Huang Renxun has mastered the technique of reducing commitments and exceeding delivery in financial performance, but a series of profits' exceeding 'expectations have resulted in so-called' private numbers', where traders begin to consider the extent to which they exceed analysts' generally announced expectations. In other words, even if Nvidia's reported data is slightly better than the above expectations, given traders' high expectations, the stock may still encounter trouble, "he wrote.
Optimistic Expectations
In Ives' view, Nvidia's market share is rock solid, which means it is the 'only game in the city'. He expects Nvidia's Q3 revenue to exceed expectations by $2 billion, and its performance guidance will also exceed expectations by $2 billion.
In the coming years, Nvidia's GPUs will become the new oil and gold of this world. Customers can be expected to invest $1 trillion or more in capital expenditures, "he wrote.
Ruben Roy, an analyst at Stifel, a multinational independent investment bank and financial services company in the United States, has raised his target price for Nvidia from $165 to $180, while William Stein of Truist Securities has raised his target price for Nvidia from $148 to $167.
Roy cited a "range of diverse data points," including the sustained investment of large scale enterprises in artificial intelligence infrastructure and the demand for Nvidia's latest Blackwell artificial intelligence chips.
We believe that Nvidia holds a favorable position in various markets, and by 2025, its overall TAM (total potential market or revenue opportunity) will exceed $100 billion, while long-term opportunity channels may approach $1 trillion, "he wrote.
Goldman Sachs expects strong market demand for Nvidia products. We expect strong demand for NVIDIA's Hopper based GPUs (i.e. H100, especially H200) and Spectrum-X (i.e. Ethernet based networking products) to drive double-digit percentage growth in data center revenue, "the bank wrote in a report
Goldman Sachs analysts have stated that they will closely monitor Nvidia's fourth quarter performance guidance, which is expected to validate their bullish views on the stock.
Industry research analyst Kunjan Sobhani stated in a recent report, "Nvidia's revenue in the third quarter is likely to significantly exceed expectations compared to the past two quarters, and the company is likely to raise its revenue forecast for the fourth quarter, thanks to the widespread adoption of its Hopper series products, even though its ultra large customers are waiting for Blackwell's production capacity increase in 2025
Blackwell hazard
Before Nvidia released its financial report this week, there was bad news: its new generation Blackwell artificial intelligence chips are once again facing delayed delivery issues.
According to reports, this AI chip has serious overheating issues in high-capacity server racks. And this defect has forced Nvidia to modify the rack design multiple times, which not only limits GPU performance but may also damage hardware. Their customers are therefore concerned that these technical issues will delay the processor deployment process in the data center.
Since Nvidia launched the Blackwell chip series in March this year, delivery times have been repeatedly postponed. From the initial second quarter of this year to the fourth quarter expected by CEO Huang Renxun, and now according to media reports, the improved Blackwell GPU is expected to be shipped as early as the end of January next year.
Nvidia has not yet made a clear statement on this matter. The spokesperson of the company only wrote in a statement to the media, "NVIDIA is partnering with leading cloud service providers, which is an essential part of our engineering team and processes. Engineering iterations are normal and expected
However, this does not completely reassure analysts. In its latest report, Wells Fargo stated, "Investors now need to add this to the list of issues
Stein from Truist Securities said, "Our conversations with industry contacts may not accurately confirm this latest data point, but they do reflect the challenges faced by the supply chain in the production process
Market research firm CFRA Research analyst Angelo Zino stated that investors should lower their expectations that Nvidia will provide strong guidance for its highly anticipated Blackwell release.
However, overall, Zino expects that Blackwell chips will be sold out for most of 2025.
Matt WellerBlackwell from Jiasheng stated that Blackwell chips will only be officially launched after the third quarter of this year. As we mentioned earlier, we believe that the first quarter of the 2025 fiscal year (ending in April) will be the true "explosive" quarter, when Blackwell chip production capacity ramp up and supply side conditions improve, which will drive a significant upward adjustment in EPS forecasts.