Nvidia Q2 earnings: what’s at stake for the ‘most important stock in the world’

“Pretty much everything,” he told Yahoo Finance on Tuesday. 

Even smaller companies in the enterprise software business that have only tangential relevance to the AI gold rush—like a ServiceNow, SAP or Adobe—stand to sink or swim, in his view from Nvidia’s report: “It will take the entire tech market with it, up or down.”

The options market is predicting its earnings could trigger a 10% swing in the value of Nvidia shares alone, the most in three years, according to data from analytics firm ORATS cited by Reuters. That equates to roughly $300 billion, or the entire value of a Coca-Cola, Bank of America or Netflix — companies that are among the top 35 in the world measured in market capitalization. 

“It’s the most important stock in the world right now,” EMJ Capital’s Eric Jackson admitted last week.

In other words it’s not just sell-side bulls like Wedbush Securities’ Dan Ives that are painting today’s results as a make or break moment for the entire tech sector. 

Part of the reason so much is hanging in the balance is the extreme pendulum swing in greed and fear experienced at the start of this month. The single worst day for stocks since 2022 was followed by the single best day for stocks since 2022 in the span of less than one week. 

At the forefront of that action was Nvidia, which has been fueling record highs in the broader S&P 500 and Nasdaq indexes in recent weeks. 

Nvidia is the bellwether in the broader AI trade precisely because it is leagues ahead of the competition, controlling roughly 90% of the global market in AI training and inference chips. Competitors large and small—whether Lisa Su’s AMD or startup firm Groq—have neither the hardware nor the software to challenge its dominance.

Blackwell delays could threaten exponential growth in its AI chip business

The biggest immediate threat to Nvidia’s stock price then is really itself, now that investors are becoming accustomed to its exponential growth. 

Its data center revenue has ballooned over the past twelve months, expanding at a compound rate of 52% each and every quarter—from just $4.3 billion in Q1 of last year to a staggering $22.6 billion in Q1 of 2024.

The question has been how sustainable this is going forward. A company like Nvidia cannot keep growing its overall top-line by nearly a factor of four from one year to the next.

That may be why CEO Jensen Huang has forecast the pace will cool slightly in the second-quarter. He expects total revenue across all lines of business of around $28 billion, a sequential increase of 7.5% over the first three months of this year, combined with a non-GAAP gross margin between 75%-76%. 

Assuming results are bang in line with its guidance, this would represent a slowdown over the 18% quarter-on-quarter gain in turnover and 78.9% gross margin it reported in May.

Chief among potential near-term risks investors will focus now is the rollout of Blackwell, its next generation AI chip architecture capable of training trillion-parameter large language models at four times the speed of its Hopper H100 chip while consuming less electricity. 

Amazon, Google, Meta, Microsoft, OpenAI and Tesla have all signaled their intention to buy the newest B200 GPUs, according to Nvidia. While Huang promised his latest blockbuster product would hit markets this year, a report in The Information suggests there could be up to a three-month delay due to a design flaw. 

“This Blackwell [risk] is probably the most important ‘X’ factor about the quarter,” Gene Munster of Deepwater Asset Management told CNBC on Tuesday. He expects the stock, which is just shy of its all-time high, will see some modest selling after the results. 

The stock closed on Tuesday at $128.30 after peaking at just over $140 a share in June. Should Tuesday’s results drive a 10% gain, it will be back to its all-time highs.