Here’s Our Plan With Nvidia Earnings on Deck

The market looks to perk up further on Wednesday following Tuesday's gain in three of the four market averages.

The latest Charles Schwab Trade Sentiment Survey found that traders are feeling better about the markets than they have at any time in the past two years, with 56% reporting a bullish outlook for the next three months, up 10 points from the second quarter. And it should come as no real surprise that these surveyed traders favored AI stocks with bullishness toward the segment increasing six points to 62%, compared to the 2Q 2024 survey. That, along with Nvidia NVDA shares being atop Interactive Brokers’ (IBR) weekly most-active list, tells us that market expectations are running high for Nvidia’s earnings after Wednesday's market close.

Even if we weren’t holders of NVDA shares, which of course we are, the impact of the company’s earnings report and guidance will have repercussions on the overall market. We can say this because NVDA shares are the third-largest holding in both the S&P 500 and the Nasdaq Composite, and the second for the Nasdaq 100 (NDX).

During Tuesday's Office Hours, we shared that all the data points leading up to Wednesday night's earnings report point to a solid June quarter, but where things could get a little funky is in the guidance. Once again, expectations are running high with consensus revenue forecast for the October quarter at $31.77 billion, up bigly from $18.1 billion in the year-ago quarter and the expected $28.7 billion for the July 2024 quarter that will be reported on Wednesday.

Nvidia has a strong reputation for besting consensus expectations, and that likely means the whisper numbers for both the July and November quarters are higher. Some of those revenue whisper numbers for the July quarter are in the $29.5 billion to $30.0 billion range, which means that if Nvidia doesn’t deliver in that range, it could be viewed as something of a disappointment. But, let’s consider that even the consensus revenue forecast of $28.7 billion for the July quarter is still up tremendously compared to the $13.5 billion delivered in the July 2023 quarter.

So, if we do see the market fail to embrace Nvidia’s earnings, something that could happen following the 30% move in the shares over the last three weeks, our plan will be to step to the side and look to see if we get an opportunity to pick up a few additional NVDA shares. After re-reading the Meta Platforms META 10-Q this week in preparation for our August Monthly Roundup that will be published on Friday, the line that stood out to us that keeps us bullish on NVDA shares as well as Marvell MRVL shares was this:

“Cash used in investing activities during the six months ended June 30, 2024, mostly consisted of $14.57 billion of net purchases of property and equipment as we continued to invest in servers, data centers, and network infrastructure… We anticipate making capital expenditures of approximately $37 billion to $40 billion in 2024. We currently expect our capital expenditures to grow significantly in 2025 as we invest to support our AI research and product development efforts.”

And remember that follows similar comments from Microsoft MSFT, Alphabet GOOGL and Amazon AMZN.

We’ve seen shares of companies that deliver solid quarterly results but have maintained their annual guidance or didn’t boost their outlook get hit. Considering the timing of the comments from Meta and the others against when Nvidia last shared its outlook, the odds of that happening are low. But if it does happen, we see support at $110, which, subject to what we learn tonight, could be an area for newer members to pick up some shares.

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At the time of publication, TheStreet Pro Portfolio was long NVDA, META, MRVL, MSFT, GOOGL and AMZN.