Nvidia Earnings Incoming As Stock Rallies – What Will Markets Make Of High Impact Release

As Nvidia (NASDAQ: NVDA) prepares to release its FY Q2 earnings on August 28, 2024, markets are leading in with support for the stock. With the NVDA share price up 4% through early trading today, the stock is closing in again on the $130 level.

With analysts projecting a consensus Earnings Per Share (EPS) of $0.64, the company is expected to report another quarter of strong growth. Having delivered a beat last time around, with $0.61 EPS against markets' consensus of $0.56, the question of how long Nvidia can continue to beat the market raises it's head once more.

Revenue is also expected to come in more than 10% above the last release at 28.71B. The previous number of $26.04BN was also a substantial beat on the $24.56BN expected. And this is a pattern that has repeated over the last year, as Nvidia continues to outpace expectations, and the share price grows in support of the operational success.

The expected EPS figure not only surpasses the previous year’s Q2 EPS of $0.25 by more than double, but also signifies a continuance of the triple-digit growth rate that has characterised Nvidia’s recent performance. As we examine the factors leading up to Nvidia's upcoming earnings report, several key developments stand out, potentially influencing both the company's results and stock rating.

One such development is the reported record low inventory levels at Nvidia amidst a backdrop of rising inventory counts among competitors, including AMD (NASDAQ: AMD). This contrast underscores Nvidia's potential to capitalise on the current market demands, especially in the Large Language Models (LLM) sector, for which artificial intelligence (AI) chips like Nvidia’s are the backbone.

Complementing this favorable position is the news from another major player in the tech space, Super Micro Computer, Inc. (NASDAQ: SMCI). Following the publication of their fiscal Q4 earnings report, SMCI announced progress with direct liquid cooling (DLC) technologies.

This notable advancement has direct ramifications for Nvidia, as the two companies are key partners. With a reported 143% Year-Over-Year (YOY) growth and 38% Quarter-Over-Quarter (QoQ) growth for SMCI, the synergy between Nvidia’s hardware and SMCI’s DLC systems could be a game changer. Nvidia’s H100 chip, noted for its high energy consumption at 700W during peak operation, stands to benefit from SMCI's DLC-enhanced liquid-cooled racks that aim to boost energy efficiency and performance.

The strategic application of DLC technologies with NVDA’s next-generation AI chips could catalyse a substantial reduction in electricity consumption and operational energy costs. The ability to train and deploy large-scale AI models in a more cost-effective manner presents a compelling value proposition for AI developers and end-users alike.

Yet, investors and stakeholders should weigh such optimistic projections with caution. Challenges persist, with potential risks arising from technical issues or delays in the production of Nvidia’s Blackwell chips. These chips are crucial to Nvidia’s product lineup, and any significant production hiccups could impact volume and revenue.

The combination of Nvidia's cutting-edge AI chips with SMCI's progressive DLC technology has the potential to broaden Nvidia's competitive moat significantly. With the financials bearing witness to the companies’ robust growth trajectories, Nvidia’s FY Q2 earnings report could potentially mark a significant milestone in affirming its dominance in the tech sector after a moment of doubt had crept in.