Nvidia is walking into earnings with expectations already sky-high
Nvidia reports second-quarter earnings after the bell, and this may be one of the more important AI reports of the year.
The stock finally snapped a seven-day losing streak on Tuesday, gaining 2.19% after its longest stretch of consecutive declines since 2022. The weakness reflects a broader change in the AI trade: investors are still excited about artificial intelligence, but they are becoming much less willing to accept unlimited spending without seeing the returns.
That puts Nvidia in an unusual position.
Wall Street already expects an incredible quarter. Consensus estimates call for $92 billion in revenue and $2.09 in adjusted earnings per share, with sales nearly doubling from a year earlier.
The challenge is no longer proving that Nvidia is growing.
It is proving that growth at this scale can continue.
The numbers investors should actually watch
Data Center remains the engine.
Wall Street expects the segment to generate approximately $85.4 billion, up 107% year over year. Nvidia has also started giving investors a better look at where those sales are coming from by separating hyperscalers from AI cloud, industrial and enterprise customers.
The current expectations are:
- Total revenue: $92 billion
- Data Center revenue: $85.4 billion
- Hyperscaler revenue: $43.5 billion
- AI Cloud, Industrial and Enterprise revenue: $41.7 billion
That last split could be especially important.
Amazon, Microsoft and Google continue to account for a major portion of Nvidia’s business, but all three are also developing custom chips of their own. They want Nvidia’s GPUs today while simultaneously trying to avoid becoming permanently dependent on them.
That makes growth outside the largest hyperscalers increasingly valuable.
If AI clouds, industrial customers and enterprises continue buying at a comparable pace, Nvidia’s opportunity becomes much broader than a handful of giant technology companies building enormous data centers.
The market wants proof that AI spending is paying off
The mood around AI has shifted since earlier this year.
Microsoft, Amazon and Google recently helped calm some concerns by reporting strong cloud growth, showing that demand for AI-related computing remains healthy. At the same time, increased spending from Google and Meta reminded investors just how much capital is required to keep building this infrastructure.
That tension is becoming one of the biggest stories in technology.
Companies are spending staggering amounts on AI. Eventually, investors need to see enough revenue and productivity coming back to justify another year of even larger budgets.
Nvidia sits directly in the middle of that equation.
If its largest customers are still ordering aggressively and management sees demand continuing to accelerate, the argument for another leg of the AI infrastructure boom becomes much stronger.
If demand begins flattening, investors may start questioning more than Nvidia’s valuation. Networking companies, data-center developers, power providers and other businesses that have rallied alongside AI spending could all feel the pressure.
In that sense, Nvidia is reporting for an entire ecosystem tonight.
Nvidia is helping build the market it sells into
One of the more interesting developments is how far Nvidia is moving beyond simply selling GPUs.
Earlier this month, the company announced plans with BlackRock, Blackstone, KKR, Apollo, Brookfield and Goldman Sachs to mobilize more than $500 billion in third-party capital for AI computing infrastructure.
Nvidia is also backing the proposed 8-gigawatt SB Energy and OpenAI data-center project in Ohio, where total investment could reach as much as $150 billion.
Those projects tell us where Nvidia believes the next phase of growth comes from.
More capital means more data centers. More data centers mean more computing capacity. And more computing capacity creates more demand for the hardware Nvidia sells.
It is an aggressive strategy, but it also shows how large the AI buildout has become. Nvidia increasingly has an interest in making sure its customers can actually finance the infrastructure required to keep buying chips.
Our focus is on demand beyond the headline beat
There is a good chance tonight’s numbers look impressive. They almost have to.
A company expected to grow quarterly revenue by 96% is already operating at a level very few businesses ever reach.
What matters more is whether Nvidia can show that the next stage of demand remains intact.
We will be watching how much growth is coming from hyperscalers versus the broader AI market, whether customers still appear willing to accelerate infrastructure spending, and whether management gives investors confidence that the current buildout stretches well beyond one or two quarters.
A strong report could quickly restore momentum across semiconductor stocks after the recent pullback.
A merely “good” report may not be enough.
That is the strange position Nvidia now occupies. The market expects greatness by default.
Tonight, the company has to show there is still another level above it.
Disclaimer
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