Nvidia’s Q3 Earnings: AI Growth, Chip Delays, and Market Risks in Focus

Nvidia (NVDA) is set to report its third-quarter earnings this Wednesday after the market closes, offering an important and critical update on the strength of the artificial intelligence (AI) boom that has pushed the chipmaker to a meteoric rise in 2024.

Nvidia’s Meteoric Rise

Nvidia, the world's largest publicly traded company by market capitalization, has been the undisputed reigning king of the AI revolution, with its stock surging 196% year-to-date. This growth far outpaces rivals AMD (down 5% YTD) and Intel (down 52% YTD), underscoring the company's dominant position in the semiconductor space.

Analysts anticipate Nvidia to post earnings per share (EPS) of $0.74 on revenue of $33.2 billion, reflecting a remarkable 83% year-over-year increase. Key business segments expected to drive these results include:

• Data Center Revenue: Forecasted at $29 billion, a 100% jump from $14.5 billion in Q3 2023, driven by explosive demand for AI chips.
• Gaming Revenue: Expected to reach $3 billion, a modest 7% increase from last year.
• Gross Margins: Projected to hit 75%, further emphasizing Nvidia’s pricing power in a competitive market.

Key Investor Focus Areas

While Nvidia is expected to beat top and bottom-line estimates, investors will also scrutinize its Q4 outlook. Analysts forecast Q4 revenue guidance of $37 billion. Even stellar results may not guarantee a stock price rally, as seen in Q2 when Nvidia exceeded expectations but still saw its stock dip 6%, potentially due to profit-taking or elevated investor expectations.

Additionally, CEO Jensen Huang’s commentary on Nvidia’s next-generation Blackwell chips will be important. These chips, which train and run AI applications, are expected to generate several billion dollars in revenue by Q4. However, delays and overheating issues reported in data center installations may temper investor enthusiasm.

Potential Challenges and Headwinds

Despite its dominant position, Nvidia faces several challenges that could impact future growth:

• Geopolitical Risks: President-elect Donald Trump has hinted at imposing tariffs on Taiwan-made chips, a significant risk given Nvidia's reliance on TSMC for manufacturing. Such tariffs could squeeze Nvidia’s margins or force price increases that may dampen demand.
• Global Trade Concerns: Broader threats of tariffs on products worldwide could further disrupt Nvidia's supply chain and profitability.

Additionally, Nvidia must address the reported overheating issues with its Blackwell chips, which could delay shipments and installation schedules for key customers.

Ripple Effects Across Markets

Nvidia's results will likely send shockwaves across the tech and semiconductor sectors:

• Semiconductor Rivals: AMD and Intel, which have lagged Nvidia in capitalizing on the AI boom, may face additional pressure depending on Nvidia’s report and guidance.
• AI Ecosystem Players: Companies like Microsoft, Amazon, and Google, which depend on Nvidia’s AI chips for their cloud services, could see stock movement tied to Nvidia’s commentary on chip supply and demand.

Looking Ahead

As Nvidia’s Q3 earnings hit the wires, the broader market will be watching not just for financial performance but for indications of how the AI trade might evolve in 2024 and beyond. Investors will pay close attention to Nvidia’s ability to maintain its breakneck growth rate, address potential geopolitical and supply chain challenges, and stay ahead of the competition in the AI chip race.