Nvidia (NASDAQ:NVDA) has been the undisputed beneficiary of recent advances in artificial intelligence (AI). Since early last year, AI adoption has spread like wildfire, fueled by Nvidia’s graphics processing units (GPUs). The company will face a major hurdle when it reports its first quarter results after the market closes on Wednesday, and Wall Street will be sitting on the edge of its seat analyzing the results.
The stock has gained an incredible 548% since the start of last year (as of this writing), fueled by strong and accelerating demand for AI. Nvidia has been the unofficial standard-bearer of the AI ​​revolution, but investors are starting to wonder whether the trend can continue at its recent breakneck pace.
With the stage set, should investors buy Nvidia stock ahead of its highly anticipated first quarter report? Let’s look at the available evidence.
A decisive quarter?
The initial enthusiasm has dissipated in recent months and investors no longer believe in the AI ​​revolution. Yet major cloud services have made clear the continued demand for Generative AI and their plans to boost investment in space.
Microsoft increased its capital spending 79% to $14 billion in the first calendar quarter, while AlphabetSpending increased 90% to $12 billion. Amazon spent $14 billion in the first quarter, which is expected to be the spending low point of the year, expecting capital spending to “increase significantly” thanks to AI.
Given that data centers and cloud infrastructure providers are among Nvidia’s biggest customers, this seems to bode well for the company’s next report.
For its first fiscal quarter 2025 (ended April 30), analysts expect Nvidia’s sales to jump 277% to $24.6 billion, with earnings per share (EPS) rising from 0.83 $ to $4.57.
While results of this magnitude may seem improbable, consider this: In the fourth quarter, Nvidia generated save revenue jumped 265% to $22.1 billion, and its outlook calls for first-quarter revenue of $24 billion — and its forecasts tend to be conservative.
Is the writing on the wall?
Several AI-focused companies have released results in recent weeks, and the market reaction has been confusing, to say the least.
Earlier this month, AI software and data mining specialist Palantir Technologies (NYSE:PLTR) reported first-quarter revenue that rose 21% year-over-year and 4% sequentially to $634 million, while its adjusted EPS jumped 60%. Wall Street found its forecasts lacking, however, and the stock fell 15% the day after its report.
For its fourth fiscal quarter 2024 (ended March 31), the chip designer Arm holds (NASDAQ:ARM) reported revenue that rose 47% year-over-year to $928 million, while adjusted EPS of $0.36 soared 1,700% (not a typo ). Despite the rise in sales and profits, investors were hoping for stronger guidance and the stock fell 2% after reporting its results.
For its third fiscal quarter 2024 (ended March 31), maker of AI-centric servers Super microcomputer (NASDAQ:SMCI) book save revenue jumped 200% year over year to $3.85 billion, while adjusted EPS soared 308% to $6.65. Despite raising its forecast, Wall Street wanted more and the stock fell 14% the day after its report.
Attentive investors will have noticed the emergence of a trend. Despite strong, better-than-expected results, Wall Street is looking to the future and taking a wait-and-see approach.
These results suggest that while demand for AI remains high, investors are not only demanding exceptional results, but also looking for strong indications to confirm that long-term AI tailwinds continue to blow.
Should you buy Nvidia stock now or wait until after earnings?
How you answer this question depends on the type of investor you are. For those looking to acquire ownership of a company with a strong execution history, savvy management and technology tailwinds, and plan to hold on to it for the long term, then Nvidia might just be the stock for them. you need.
If, however, you’re planning to jump into the stock ahead of earnings in the hopes that it will break out so you can get out quickly, then Nvidia could end up being a disappointment. Truth be told, there’s simply no way to know for sure whether Nvidia stock will rise. Or down after its report on Wednesday.
If I had to hazard a guess, I tend to think that investors continue to underestimate the continued strong demand for AI and the fundamental changes it will bring to the fore. That said, unless Nvidia significantly increases its guidance, the stock could fall.
That said, Nvidia has shown a knack for skating to where the puck is going rather than where it is. The company continues to spend heavily on research and development, which accounted for 20% of its revenue in 2023. Nvidia is already working on the next generation of cutting-edge AI processors, allowing it to stay ahead of ahead of the competition.
Finally, there is the question of Nvidia’s valuation. At 79 times earnings over the last 12 months, the stock might seem sky-high if it hadn’t seen three straight quarters of triple-digit growth, with another likely on the way. However, Nvidia sells 38 times following profits for the year, and although that’s a bit high, it’s justified by the company’s meteoric growth.
However, for those looking beyond the current quarter, I think Nvidia’s track record and history of innovation speaks for itself, making it a buy for investors intending to hold. for years, even decades.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet, Amazon, Microsoft, Nvidia, Palantir Technologies and Super Micro Computer. The Motley Fool holds positions and recommends Alphabet, Amazon, Microsoft, Nvidia and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Should you buy Nvidia stock before Wednesday? was originally published by The Motley Fool
