Nvidia's stock has gained significance worldwide, intensifying anticipation for its upcoming earnings report.

• As investors search for indications that major cloud providers are shifting their interest towards artificial intelligence processors, Nvidia's stock has become increasingly unstable.
• The AI boom has benefited the chipmaker, who is expected to report a fourth consecutive quarter of revenue growth.
• The forecast will be Wall Street's main focus as year-over-year comparisons become increasingly challenging.

Recently, investors have experienced a roller coaster ride instead of the joyride they've had in the past two years.

Nvidia's market cap has increased by almost nine times since the end of 2022, making it the primary beneficiary of the artificial intelligence boom. However, after reaching a record in June and briefly becoming the world's most valuable public company, Nvidia lost almost 30% of its value over the next seven weeks, shedding roughly $800 billion in market cap.

The stock is currently experiencing a rally that has brought it close to its all-time high.

The chipmaker's quarterly results on Wednesday are causing Wall Street to closely monitor the stock's volatility. Any hint of declining AI demand or a major cloud customer tightening its spending could result in significant revenue drops.

"Eric Jackson of EMJ Capital stated on CNBC's "Closing Bell" last week that the stock is currently the most crucial in the world. If the company fails to deliver, it could cause a significant issue for the entire market. Jackson believes that the stock will exceed expectations."

Nvidia's report was released after its tech peers completed their earnings, with the company's name frequently mentioned in analyst calls as they heavily invested in Nvidia's GPUs for AI model training and massive workloads.

Nvidia's data center business has been the primary driver of its revenue growth, resulting in a more than threefold increase in revenue over the past three quarters on an annual basis.

LSEG reports that analysts anticipate a fourth consecutive quarter of triple-digit growth, but at a slower rate of 112% to $28.7 billion. Following this, year-over-year comparisons will become increasingly challenging, and growth is predicted to decrease in each of the following six quarters.

Nvidia's forecast for the October quarter will be closely watched by investors, as the company is predicted to experience growth of approximately 75% to $31.7 billion. Positive guidance may indicate that Nvidia's clients are continuing to show a willingness to invest in AI, while a lower forecast could raise concerns about the sustainability of infrastructure spending.

According to Goldman Sachs analysts, who advise purchasing the stock, investors frequently question the sustainability of the current capex trajectory due to the significant increase in hyperscale capex over the past 18 months and the strong near-term outlook.

The optimism in the report, with the stock up 8% in August, is mainly attributed to feedback from top customers regarding their continued spending on data centers and Nvidia-based infrastructure.

The CEOs of Google and Meta recently endorsed the pace of their buildouts and stated that underinvesting was a greater risk than overspending. In a video that was later removed, former Google CEO Eric Schmidt told students at Stanford that he was hearing from top tech companies that they needed $20 billion, $50 billion, or even $100 billion worth of processors.

Despite Nvidia's recent increase in profit margin, there are concerns about the long-term return on investment that clients will receive from their purchases of expensive devices that are being ordered in large quantities.

In May, Nvidia's CFO Collette Kress shared data indicating that cloud providers, responsible for more than 40% of Nvidia's revenue, would generate $5 in revenue for every $1 spent on Nvidia chips over a four-year period.

Goldman analysts wrote that the company would share further ROI metrics this quarter to instill confidence in investors.

Blackwell timing

Nvidia's next-generation AI chips, Blackwell, are facing production issues that may delay big shipments until the first quarter of 2025. Despite earlier reports that production was on track to ramp in the second half of the year, the company is now facing production issues.

In May, Nvidia CEO Jensen Huang announced that the company will see "a lot" of Blackwell revenue this fiscal year, surprising investors and analysts.

Nvidia's Hopper chips remain the top choice for AI applications like ChatGPT, but competition from Google and startups is intensifying, forcing Nvidia to maintain its performance edge through a seamless upgrade process.

While there may be a potential Blackwell delay, that revenue could be pushed back into a future quarter, benefiting current Hopper sales, particularly the newer H200 chip, as the first Hopper chips were in full production in September 2022.

Morgan Stanley analysts noted that the shift in timing has little impact, as supply and customer demand have quickly shifted to H200.

Nvidia's Blackwell chips are in high demand from many of its leading customers, who require the extra processing power to develop advanced AI models, even if they can't get everything they need.

In the second half of the year, HSBC analyst Frank Lee expects Nvidia to shift its focus from Blackwell B100/B200 GPU allocation to increasing its Hopper H200s. Despite this, Lee maintains a buy rating on the stock.

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