Nvidia Faces High Expectations with $220 Billion Rally and Record-High Shares

Nvidia Stock

As Nvidia Corp. (NASDAQ:NVDA) prepares to release its earnings report, investors are grappling with the challenge of determining how much potential blowout earnings can further boost a stock that has already surged to record highs. The chipmaker, now the world’s most valuable, is expected to once again surpass expectations, reflecting the sustained demand for its artificial intelligence computing chips.

Nvidia’s shares have witnessed an impressive 240% gain this year, propelling the company to record highs. However, with such substantial growth, there is little room for error. The stock’s sensitivity to market conditions was evident in August when the positive impact of stellar earnings waned as the broader S&P 500 index saw its gains lose momentum.

Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, notes, “In the near term, great isn’t always good enough.” Nvidia’s performance has become pivotal for the market-capitalization-weighted S&P 500 Index, accounting for nearly 15% of its 2023 rally. A significant earnings miss could have considerable consequences.

Despite closing at a record high above $500 per share on Monday, giving Nvidia a market value of $1.23 trillion and the fifth-biggest weighting in the S&P 500, the stock dipped 1.4% on Tuesday. Investors are becoming harder to impress, given the remarkable financial performance in the past two quarters.

Dan Morgan, senior portfolio manager at Synovus Trust Co., acknowledges the challenge, stating, “Everybody expects great news, everybody expects them to beat and raise. Even if they do that, that’s what everybody expected.”

In anticipation of the earnings report, Nvidia has experienced a rally, adding about $220 billion in value this month. The options market implies a one-day move of 7% in either direction following the report. Demand for Nvidia’s AI accelerators remains strong, with tech giants like Microsoft, Amazon, Alphabet, and Meta heavily investing in generative AI capabilities.

Analysts have consistently raised profit estimates, with the average projection for fiscal 2025 adjusted earnings per share nearly tripling in the past six months. The company, which saw revenue more than double in the last quarter, is expected to report third-quarter sales growth of 171%, making it the fastest-growing among the seven largest companies driving this year’s stock market rally.

Despite challenges in October due to expanded restrictions impacting China’s access to advanced computer chips, analysts are not anticipating a major near-term impact on Nvidia, as the company can prioritize orders from U.S. firms.

Adam Sarhan, CEO of 50 Park Investments, emphasizes the importance of expectations, stating, “Nvidia has already indicated how strong its earnings growth could be, so even if there is some short-term disappointment, assuming the long-term story remains intact, cooler heads will eventually prevail.”

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