VIDEO: Preparing for Nvidia’s Highly Anticipated Earnings

In today’s Portfolio video, Chris Versace gets us ready for quarterly results and guidance after Wednesday's market close from Nvidia NVDA. 

Wall Street expectations are running high for the July quarter and even more so for the company’s October quarter guidance. We break that down as well as the level of short interest for Nvidia shares in discussing how we’re approaching the Portfolio’s NVDA position. 

Chris also discusses other earnings reports alongside Nvidia’s and ones on Thursday that will bring additional context for AI infrastructure demand. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here, Wednesday, August 27. Hump day to some and for others, a sign that we are almost at the Labor Day holiday weekend. But for us, as you can probably imagine, it means NVIDIA reports after today's market close.

And let's just consider that as we get ready for this report, the stock has kind of doubled almost since its April low. And it's been up by more than a third since it last reported its April quarter results in late May.

Now, when we look at the stock from a technical perspective, it's not overbought. But I think it's fair to say, given the movement that we've seen in the shares, expectations are running high, especially following the upsized capital spending figures that we received from big tech companies over the last few weeks.

To put a point on it, if you will, companies are expected to spend about $375 billion globally on AI infrastructure this year. Next year, it's expected to run around $500 billion, again, globally. And that figure is from UBS.

Kind of taking a longer term view, though, real estate company Brookfield Asset Management estimates that AI infrastructure will top $7 trillion in aggregate over the next 10 years. Pretty lofty numbers, but as we know, in the here and now, July revenue reports from Taiwan Semiconductor Foxconn and other comments that we've received have all been very supportive about what we're going to hear tonight from NVIDIA, tomorrow from Marvell.

To that, we can also add the alert that we shared with you yesterday about rising consumer AI adoption and other signals that we've had about AI adoption in the enterprise and elsewhere. And yes, there was a fresh one last night with quarterly results from MongoDB, which should give us some nice lift today to our shares of ServiceNow.

Now, all that I just rattled off, those big figures, rising AI adoption, and the flow through for incremental capacity, that all keeps us bullish on NVIDIA and Marvell shares. But again, it also means that expectations are likely to be high. And given NVIDIA's leadership position, it stands to reason that the market is expecting something big.

So let's talk numbers, shall we? For the July quarter, the consensus revenue number is $46.13 billion. That's on a range of $45 to just over $56 billion. EPS for the quarter, $1.01. Now, when we look forward for the October quarter, so the sequential guidance that the company could give, revenue is expected to come in just under $53 billion. Remember, that's up from $46.13 billion.

But here too, the band on revenue expectations for the October quarter goes from $47 billion to $63 billion. That's a big, big gap. EPS for the October quarter comes in, on a consensus basis, $1.09. But here too, the range across Wall Street, $1.03 to $1.40.

So do we expect NVIDIA to deliver a very good, solid July quarter results, good guidance? We do. But as you can see, expectations could be running just a little too high, a little too rich. Now, outside of those figures, there will be some other things that we'll want to dig into as it relates to what NVIDIA has to say.

The Blackwell capacity ramp margins, especially for the second half of the year, earlier in the year, there was some margin pressure as Blackwell was ramping. That's expected to abate in the back half of the year. And look, we've seen this before as new capacity is added.

We talked about that over the last several quarters with Microsoft, where we're starting to see that really pay off. So with NVIDIA, we want to understand where are we in the capacity ramp for Blackwell? Are we starting to see the benefits of that ramp in terms of incremental margins and what that means for the margin guidance for NVIDIA in the back half of the year?

We will also want to pay close attention to demand outside of the US. We know, really over the last quarter plus, that there's a lot of incremental capital spending being done outside the US. So what is NVIDIA seeing? Is that accelerating even further?

But we also want to pay close attention to what it says about China. What are the expected volumes? And how will that impact overall revenue for NVIDIA in the second half of the year and margins? And I say this for recognizing the deal that NVIDIA cut to pay the US government 15% of revenues on products shipped to China.

So as we digest the numbers, the comments, let's remember too that NVIDIA is about 7.7% of the S&P 500 and 14.5% of the NASDAQ 100. It's safe to say, folks, that what we learn tonight from NVIDIA, one way or another, it is going to have an impact on the market tomorrow as we close out the week.

Here's the thing, in addition to NVIDIA's earnings, tonight, we're also going to get quarterly results from HP and Snowflake. Tomorrow, as we know, Marvell, but also from Dell. Inside those reports, we're going to get a lot more on AI adoption, server demand, and, of course, AI PC expectations for the second half of the year.

So as we put all of this together from a portfolio perspective, yes, NVIDIA, it is our second largest holding. And I would share with you that as of August 15, data from NASDAQ, roughly 205 million shares of NVIDIA are short. Now, when we look at the average trading volume for the shares, that implies about 1, 1 and 1/3 days to cover, depending on what happens.

So here's how we're thinking about it. Should NVIDIA deliver a beat and raise quarter against that wide revenue and EPS band, it will trigger some short covering. We could see the shares pop higher. We would like that, obviously. However, if there is a bone to pick in what's delivered, that could pressure NVIDIA shares and the market tomorrow, remember, that short interest, as well as that wide band of expectations, especially for the October quarter.

Now, as we think about this, in the past, we have seen stocks overreact, sometimes significantly, to what are very, very modest misses relative to the big picture. And it can be nice opportunities as calmer heads regain the wheel.

So while we expect good things, as the saying goes, fortune favors the prepared. So based on what we hear from NVIDIA, HP, Snowflake, Marvell, and Dell, we're going to plot our next move, which could be as simple as holding our existing cards.

So as we think about it, and all those reports that we'll be sifting through, as well as other investor conference comments that are unfolding today, tomorrow, we are going to have a lot more coming at you over the next couple of days.

And I didn't even mention Friday's July PCE price index report, which we know the market will be watching as we fade into the holiday weekend. So we're going to have a lot more coming at you, breaking it all down. And based on what we learn, as I said, we will plot our next moves.

Please be sure to check your emails, your alerts. We want to make sure you get our latest thoughts. And as I like to say, if we happen to make any moves one way or the other with the portfolio, we want to make sure that you are right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long NVDA.