Nvidia (NVDA): Q2 Earnings Outlook Amid Stock Split & AI Growth

Aug 26

Introduction
Nvidia Corporation (NASDAQ: NVDA) has been a dominant force in the technology sector, particularly in the AI chip market. As the company gears up to release its earnings report for the second quarter of 2024 on August 28th, investors are eagerly anticipating the results. With a year-to-date surge of over 150% and a pivotal stock split in June 2024, Nvidia continues to capture the market's attention.

Fundamental Overview: A Leader in AI Chips
Nvidia's Q2 earnings report is expected to show a year-over-year revenue increase of approximately 112%, bringing total revenue to $28.68 billion. This impressive growth is driven by the company’s dominance in the AI chip market, where its graphic processing units (GPUs) are critical for large-scale AI applications. Companies like Microsoft (MSFT) and other tech giants have been investing heavily in Nvidia’s technology to build out their AI infrastructure, which has significantly boosted Nvidia's revenue.

However, despite these strong sales figures, Nvidia's gross margin may see a slight decline. The adjusted gross margin is projected to drop by over 3 percentage points to 75.8% from the previous quarter, primarily due to the costs associated with ramping up production to meet the surging demand for its chips. This is a key area for investors to watch, as it could impact Nvidia's profitability in the near term.

Moreover, Nvidia (NVDA) faces potential challenges in maintaining its rapid growth. With the law of large numbers coming into play, sustaining triple-digit revenue growth becomes increasingly difficult as the company’s market cap expands. Additionally, potential production delays for Nvidia's next-generation Blackwell AI chips could pose a risk to future earnings. Analysts have raised concerns about design hurdles that might push the chip’s launch timeline, potentially affecting revenue growth in the first half of 2025.

Nvidia's market position is also under scrutiny, with U.S. regulators probing the company’s business practices. There are growing antitrust concerns about whether Nvidia is leveraging its dominant position to pressure cloud providers into purchasing bundled products, including networking equipment alongside its sought-after AI chips. This regulatory environment adds another layer of complexity to Nvidia’s future prospects.

Despite these challenges, Nvidia (NVDA) is likely to continue its strong performance in the AI sector. The company is expected to forecast a 75% surge in third-quarter revenue to $31.69 billion, although this represents a slowdown from the triple-digit growth seen in previous quarters. Nevertheless, Nvidia’s position as a leader in AI technology is unlikely to be seriously challenged in the near future.

Technical Overview
From a technical perspective, Nvidia’s stock is showing signs of strength ahead of its earnings report. The stock closed last Friday’s session up 4.55%, indicating strong investor confidence as the company prepares to announce its results. Nvidia’s stock is currently valued at about 37 times its forward earnings, which is higher than the average of around 29 for the top six tech companies on the S&P 500. This premium valuation reflects the market’s high expectations for Nvidia’s future growth.

One of the key technical indicators to watch is Nvidia’s support and resistance levels. The stock has found solid support at $115.40, with a strong resistance pivot at $145.64. If Nvidia can break through this resistance level, it could trigger a significant rally, potentially driving the stock to new highs. Nvidia’s RSI (Relative Strength Index) was at 59.93 as of last Friday’s close, suggesting that the stock is in a healthy range, neither overbought nor oversold. This RSI level indicates that Nvidia (NVDA) could be primed for a surge, especially if the earnings report exceeds expectations.

Nvidia’s Moving Average Convergence Divergence (MACD) indicator is also showing bullish momentum. The MACD line has been trending above the signal line, a classic indicator of upward momentum in a stock’s price. This technical setup suggests that Nvidia could continue its upward trajectory, particularly if the earnings report delivers positive surprises.

The Stock Split: Making Nvidia More Accessible
In June 2024, Nvidia (NVDA) announced and completed a 10-for-1 stock split. This move was designed to make Nvidia’s shares more affordable to a broader range of investors after its stock price had soared to over $1,100 per share. The stock split increased the stock's liquidity, allowing more investors to participate in Nvidia’s growth story. Since the split, Nvidia’s stock price has continued to rise, driven by the company’s leadership in the AI sector and the ongoing demand for its cutting-edge GPUs.

The stock split also had the effect of broadening Nvidia’s investor base, as more retail investors were able to purchase shares at a lower price. This increase in liquidity has contributed to the stock’s continued upward momentum, as it has made it easier for investors to buy and sell shares quickly.

Conclusion
Nvidia Corporation (NVDA) is at the forefront of the AI revolution, and its upcoming earnings report is likely to be a major market mover. While the company faces challenges, including potential production delays and regulatory scrutiny, its dominant position in the AI chip market and its continued revenue growth make it a compelling investment opportunity.

From a technical perspective, Nvidia’s stock is showing signs of strength, with key support and resistance levels suggesting the potential for further gains. The recent stock split has made Nvidia more accessible to a wider range of investors, further bolstering its market position.

As Nvidia prepares to release its Q2 earnings, investors should keep a close eye on the company’s performance. A strong report could propel the stock to new highs, while any miss could trigger a broader sell-off in the AI sector. Nevertheless, Nvidia’s long-term growth prospects remain robust, making it a stock to watch closely in the weeks and months ahead.