Analysts: Nvidia Earnings to Reveal Whether AI Infrastructure Boom Has Peaked

Nvidia Corp.'s fiscal second-quarter results could provide the clearest indication yet of whether the massive AI infrastructure spending cycle is still accelerating or nearing its peak.

Nvidia Earnings Test the AI Infrastructure Boom

Nvidia is scheduled to report results after the bell Wednesday, with Wall Street expecting revenue of approximately $92 billion, while the company has guided to $91 billion, plus or minus 2%.

Daniel Newman, CEO of The Futurum Group, said Nvidia is the "purest test" of whether AI infrastructure demand has truly peaked.

Newman expects revenue could reach $94 billion to $95 billion, potentially exceeding Nvidia's guidance, with October-quarter revenue potentially climbing to $107 billion to $108 billion and eventually breaking above $110 billion.

If Nvidia continues to deliver accelerating revenue growth while maintaining gross margins in the mid-70% range, Newman said it would be difficult to argue that the underlying computing cycle has begun to decline.

Nvidia's Hyperscaler Growth Faces Its Next Big Test

Newman said, "The biggest thing I'm watching is the distribution between hyperscalers and ACIE, which goes beyond the headline revenue number."

He said Nvidia's decision to break out data center demand into major cloud and internet companies versus its broader AI cloud, industrial, and enterprise customer base gives investors a clearer view of whether AI demand is expanding beyond the industry's largest buyers.

Hyperscalers such as Microsoft Corp., Amazon.com, Inc., Alphabet Inc., and Meta Platforms Inc. have driven much of the growth in the AI infrastructure boom.

U.S. hyperscalers are expected to spend approximately $916 billion in capital expenditures over the next 12 months, with consensus estimates projecting that figure to rise to nearly $1.2 trillion in the following year.

Newman believes that if ACIE growth accelerates, the next phase could become more sustainable, indicating that enterprises, industrial companies, sovereign customers, and new cloud providers are absorbing more AI computing demand.

Strong Nvidia Earnings May Not Lift NVDA Stock

However, Newman warned that merely beating earnings expectations may not be enough to push Nvidia's stock higher.

With expectations already elevated, if Nvidia's results or forward guidance fail to exceed what is already priced into the stock, investors could sell the shares.

Newman said, "My confidence in predicting whether the stock goes up or down the next morning is low," while maintaining that Nvidia's long-term earnings trajectory is the more important factor.

Nvidia's stock has fallen after five of its last six earnings reports, with the last earnings-related gain of 10% or more occurring in February 2024.

Newman sees a potential path where calendar year 2027 earnings per share could exceed $15, with 2028 around $20, implying that sustained earnings growth could drive Nvidia's stock without requiring another significant expansion in its valuation.

Nvidia Earnings Estimates Focus on AI Demand

In May, Nvidia reported first-quarter revenue of $81.615 billion, up 85% year over year, beating Wall Street's estimate of $78.796 billion.

The company guided second-quarter revenue to $89.18 billion to $92.82 billion, above Wall Street's forecast of $86.62 billion at the time.

For the latest quarter, Wall Street expects Nvidia to report adjusted earnings per share of $2.07 on revenue of $91.91 billion, compared with adjusted EPS of $1.04 on revenue of $46.74 billion a year ago.

These estimates will focus on whether AI demand remains strong enough to support Nvidia's high-growth expectations. The options market is pricing in a 5.35% move in Nvidia's stock following the earnings report.

While that is the smallest implied move among companies on this list, the risk remains significant: Nvidia's market capitalization is approximately $5.26 trillion, meaning roughly $282 billion in market value could be at risk.

Price action: Nvidia shares closed Monday at $208.48, down 2.91%. The stock traded at $208.90 in after-hours trading, up 0.20%. According to Edge Rankings, Nvidia ranks in the 99th percentile for growth and continues to issue positive short-term, mid-term, and long-term price trend ratings.