Strong AI Earnings Season Marred by Nvidia’s Absence

Nvidia Stock NASDAQ:NVDA

Most of the recent updates from the world’s largest technology corporations have heralded positive outcomes. One missing piece is Nvidia Corp (NASDAQ:NVDA).

The company, whose dominance in chips that do the heavy lifting for AI computing has made it the focal point in a market captivated by the burgeoning technology, isn’t due to report earnings until May 22.

That’s well after other releases showing profits rising at a healthy clip, demand for artificial intelligence tools boosting sales for cloud computing services, and signs of continued heavy spending on AI gear.

Mike Bailey, research director at Fulton Breakefield Broenniman LLC, posed a critical query regarding Nvidia’s prospects amidst reports of substantial chip purchases from major buyers. As Nvidia shares surged by up to 1.4% during Monday’s trading session, the lingering question remains: will this influx of demand suffice?

Among Nvidia’s biggest customers, Meta Platforms Inc. (NASDAQ:META), Microsoft Corp. (NASDAQ:MSFT), Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) have all indicated that capital expenditures will continue at the current pace or increase this year.

Following a slump in AI hardware makers before the commencement of Big Tech earnings in the first week of April, Nvidia shares have experienced a notable rebound since April 19. The stock is up 18% since then but it’s still down about 5% from a March peak. Amidst the decline in shares of other AI hardware makers following robust earnings reports, it’s evident that market expectations are significantly elevated.

Rival chipmaker Advanced Micro Devices Inc. (NASDAQ:AMD) tumbled nearly 9% on May 1 despite raising its forecast for AI accelerator sales this year to $4 billion from $3.5 billion. Super Micro Computer Inc., the server maker whose shares have gained more than 170% this year, dropped 14% after its earnings report that included forecasts for revenue and profits that far exceeded the average of analyst estimates.

With earnings from about 80% of the S&P 500 already in, technology and communication services companies are beating profit estimates at a stellar clip. Roughly 90% of tech and communication services companies have topped earnings estimates, well ahead of the 79% average for the benchmark, according to data compiled by Bloomberg.

The trouble is that the results have had difficulty moving the needle for stocks after a rally that’s lifted the tech-heavy Nasdaq 100 Stock Index by more than 35% over the past 12 months. Both groups rank at the bottom of the main S&P 500 sectors for stock price moves the day after earnings. The average move for the tech sector is down around 1.5% while communications shares have fallen 2.7%.

According to Solita Marcelli of UBS, AI computing stocks retain their allure, particularly as combined capital expenditures from major players like Microsoft, Alphabet, Meta, and Amazon are projected to surpass $200 billion this year, marking a $20 billion increase from earlier estimations.

Marcelli, Chief Investment Officer Americas at UBS Financial Services, expressed optimism about the numerous positive indicators in tech fundamentals observed during the first-quarter reporting season. She emphasized that these factors further reinforce the investment rationale for generative artificial intelligence.

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