Big Tech companies have experienced a remarkable rally, with their market value increasing by $2 trillion recently. Despite the Biden administration’s recent restrictions on certain chip exports to China, Nvidia (NVDA) is one of the Magnificent Seven companies that hasn’t slowed down. While several competitors have announced new AI chips in production, the question remains whether they can catch up to this tech giant. Investors are eagerly awaiting the release of Nvidia’s third-quarter earnings on Tuesday, November 21, after the market closes.
Paul Meeks, a professor at The Citadel, expressed concern about a potential repeat of what happened when Nvidia released its second-quarter results. Meeks stated that the company “crushed the numbers and gave pretty good guidance. After the call, folks raised their numbers all over the street, yet the stock took quite a hit.”
In terms of what to expect from Nvidia’s report, Meeks believes that the company will exceed the consensus estimates, which currently stand at $3.10 in non-GAAP EPS and $14.9 billion in sales. However, he also expresses worries about high expectations for the company and potential long-term challenges. These challenges include the slowdown of purchases to China and the uncertainty surrounding the resolution of the export restrictions.
Meeks also raises concerns about the future demand for Nvidia’s GPUs for AI. He questions what will happen when cloud hyperscalers, who are currently purchasing as many GPUs as they can get, reach a point where they pause to digest their purchases. While Nvidia currently enjoys high average selling prices and margins, Meeks worries about the market’s reaction rather than the company’s fundamentals.
China is another key topic that investors and analysts will likely discuss during the earnings call. Meeks acknowledges that China is an important market for Nvidia, accounting for at least 25% of data center sales in the long term. However, with the tightening of US restrictions on chip exports and the potential impact on Nvidia’s long-term prospects, Meeks emphasizes the need for clarity on the company’s strategy in China.
Despite these concerns, Meeks remains optimistic about Nvidia’s short to intermediate-term performance. He expects the company to continue exceeding expectations next year, with estimated non-GAAP EPS of $15 or $16. However, the long-term outlook will depend on how Nvidia navigates the challenges in China and whether they can find ways to circumvent the restrictions.
Overall, Nvidia’s upcoming earnings report will provide valuable insights into the company’s performance and its ability to maintain its position as a leader in the AI industry.