Nvidia’s upcoming Q1 earnings, aligned with market expectations, may reverse recent stock decline, but long-term factors remain pivotal.
- Nvidia’s Q1 earnings will be an important event in the stock market, with consensus expectations currently aligned with the company’s guidance.
- Historical data suggests a positive market reaction when Nvidia surpasses earnings estimates, despite recent stock retracement.
- Yet, long-term investors should focus on factors that go beyond earnings like AI demand, customer base, and technological innovation.
- Catch the latest investment trends! Join our FREE Wall Street Trends Substack community for insights and stay tuned for the newest investment insights.
Nvidia’s NVDA 943,59 -2,71 -0,29% Q1 earnings report is scheduled for May 22. As usual, the market anticipates strong growth for the company, with gains in revenue and margin expected to align with the management team’s guidance.
Despite oustanding performance this year, up nearly 70% YTD, the past 30 days have witnessed a 9.5% retracement in Nvidia stock. Let’s delve into how the earnings might (or might not) change the recent downward trend of the stock.
Market Expectations vs Guidance:
Nvidia’s guidance already predicts very positive earnings. Regarding revenue, the management team anticipates strong growth in Data Center, with a seasonal decline in gaming, along with robust gross margins:
Guidance:
- Revenue: $24.0 billion, plus or minus 2%
- Gross Margins: 76.3% GAAP and 77.0% non-GAAP, plus or minus 0.5%.
Market consensus estimates for these indicators are:
- Revenue: $24.3 Billion
- Gross Margins: 77.0%
Furthermore, the market estimates an adjusted EPS of $5.52 in Q1, resulting in a YoY change of 406% and a QoQ change of 7%. Thus, while the market holds optimistic assumptions, they are in line with the upper end of the guidance provided by the company.
Could Nvidia Stock Soar After Earnings?
Of course, it’s impossible to accurately predict whether Nvidia stock will rise after earnings, even if it surpasses market estimates. But history can help to set expectations.
Even in some periods when the company exceeded estimates, such as Q3 2023, there was share price retracement on the day. This is because the stock price isn’t solely driven by current-quarter financials, although they can be crucial. Factors like expectations, guidance, and uncertainties in markets like China also impact the market’s mood and, consequently, the stock price.
That said, recent history shows that when Nvidia stock surpasses estimates (which has been happening quite frequently), the market reaction is generally positive.
As illustrated in the graph below, in the past 5 quarters, the company has exceeded EPS estimates, with the stock rising significantly in 3 instances.
Breaking down the recent quarters:
- 4Q23: Est Avg EPS $4.63 | Actual EPS $5.16. Surprise was 11.4%, and stock soared 16.4% in one day.
- 3Q23: Est Avg EPS $3.39 | Actual EPS 4.02. Surprise was 18.7%, and stock fell 2.5% in one day.
- 2Q23: Est Avg EPS $2.09 | Actual EPS 2.70. Surprise was 29.3%, and stock remained flat at 0.1% in one day.
- 1Q23: Est Avg EPS $0.92 | Actual EPS 1.09. Surprise was 18.8%, and stock soared 24.4% in one day.
- 4Q22: Est Avg EPS $0.80 | Actual EPS 0.88. Surprise was 9.45%, and stock soared 14% in one day.
It looks like there’s a correlation between Nvidia beating EPS estimates and the stock rising on the day. However, note that the relationship between the level of surprise and how much the stock rises isn’t always consistent, as factors like guidance and new perspectives also hold significant relevance.
In summary, market estimates, however optimistic, still fall within the company’s guidance and seem plausible. Once again, Nvidia could exceed these estimates, leading to a stock price spike, given the high liquidity and strong reliance on earnings results.
On the other hand, I believe that for long-term investors, there are more critical aspects to pay attention to in the upcoming earnings call in May, such as prospects for AI demand in the mid and long term, customer concentration (and new growth avenues, such as sovereign AI), leadership, technological innovation, and others.
Check out a conservative analysis on Nvidia’s valuation here:
The Bottom Line
In conclusion, it’s possible that Nvidia will once again surpass earnings and consequently reverse the recent downward trend of the stock into an upward trend.
However, besides this factor not being the most important for the long-term investor, there are various external factors considered by the market, which could cause the stock to fall even with strong earnings and positive prospects, such as macroeconomic factors in the U.S. (e.g., interest rates) or geopolitical concerns.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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