NVDA on Watch: Is Nvidia Stock a Buy Ahead of Its May 22 Earnings Report?

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Nvidia (NASDAQ:NVDA) stock has set the bar very high for how companies in this industry need to perform. Nvidia’s 2023 results were driven by high demand for AI chips and the success of ChatGPT and other language models. Nvidia’s GPU demand tripled, leading to unforeseen stock price appreciation.

The company’s new “Blackwell” server GPUs continue to lead the AI market, leaving competitors like Advanced Micro Devices (NASDAQ:AMD) to catch up. Owning Nvidia stock has been wise for long-term investors. The uncertainty surrounding Blackwell chip raises doubts about Nvidia’s worth ahead of its earnings report.

NVDA Stock an Upcoming Earnings

Since 2022, ChatGPT stirred the world and Wall Street because of its AI capabilities. Nvidia also emerged as a top performer since its chips are integrated into AI machines. Demand for its AI chips soared, as did its shares, which surged 510% off their bottom. 

It’s no surprise the market is expecting a lot from Nvidia this Q1 2024. The company easily exceeded estimates in recent quarters, so investors clearly expect some blowout numbers once again this upcoming quarter.

This past quarter, revenue surged 265% to $22.1B, led by data center demand for AI systems. Non-GAAP net income also rose 491% to $12.8B. And CEO Jensen Huang noted two things to look forward to from Nvidia: its transition to a generative AI factory and accelerated computing.

The company expects a revenue rise in Q1 to reach $24 billion and a net income of $5.62 per diluted share. However, Wall Street expects $24.5 billion in revenue and $5.55 net income per diluted share. Q2 forecasts predict revenue of $26.5B and non-GAAP net income of $5.91 per diluted share. Missing these projections could harm the stock while surpassing them could lead to a surge.

Strength in GPUs and AI Chips

Nvidia’s strength in the AI sector is its key advantage. With GPUs remaining key for AI workload acceleration, Nvidia commands 80% to 95% market share in AI chips. The company is expanding into CPUs and networking, expecting multibillion-dollar revenues. Its software and services also show promising growth.

That said, analysts are almost singularly focused on the company’s AI segment growth. That’s because this is the area of the business with the most robust growth potential over the long-term. Computing needs are going to rise, and since it’s expected to come from the AI space, Nvidia has a real shot of completely disrupting this nascent sector.

Analysts have indicated strong AI server demand should continue for some time. Thus, Nvidia should see earnings per share estimates move higher for fiscal 2025-2027.

Nvidia may have previously set low profit targets, potentially driving further stock growth. We’ll have to see. And while Nvidia’s forward price-earnings ratio of 36-times may seem high, it’s also true that the company’s triple-digit sales growth justifies this multiple.

NVDA Stock Still Looks Like a Strong Buy

Nvidia thrived in the AI boom, with its leading GPU chips up 78% year-to-date. Analysts expect a sharp move ahead of its May 22 earnings, with a 17% upside forecasted. The company’s recent earnings report showed substantial revenue and net income, but sequential growth slowed to 22%.

However, such small bumps in the road shouldn’t discourage investors to ignore NVDA stock. In the long-run; Nvidia is a must-have stock in every investor portfolio as AI is still in its very early innings of growth.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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