Nvidia Faces Bullish Crossover as Market Anticipates Momentous Report
As the influential chip maker prepares to deliver a market-moving earnings report, here's my plan.
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The vast majority of the S&P 500 has now reported their numbers for the season. All stocks matter to those with skin in the game. Some stocks can reach somewhat beyond directly impacting those with open positions either in the equity itself or in related derivatives. Very few stocks can impact "the broader market" significantly simply by showing up. This late in the season, earnings season that is, there is but one name that can either rattle or cheerlead U.S. financial markets all by itself. You knew from the very start that I was speaking of the one, the only, Nvidia NVDA and that firm's CEO... Jensen "The Fonz" Huang.
Loyal readers know that I have benefited greatly from NVDA's run over the past year and change and that I had taken partial profits at target prices on the way up. Readers also know that, quite fortunately, I had reloaded in the pre-opening hours of the big sell-off on August 5, 2024, at an average price of $92.78, which was above my net basis (now $54.24), but an irresistible discount at the time. The stock closes that day at $100.45. I was open about those trades, both here at TheStreet Pro and on the X (Twitter) social media platform.
So, now we approach another inflection point. Let's dig in, shall we?
Expectations
This Wednesday evening, elite-level chip designer Nvidia, the most obvious beneficiary of big tech's surge in spending on the infrastructure for a world very likely to eventually be highly-dependent upon generative artificial intelligence, will release the firm's fiscal second quarter financial results.
Wall Street is looking for a GAAP EPS of $0.60, adjustable to $0.64 on revenue of roughly $28.65 billion. These numbers would be good for adjusted earnings growth of 156% on revenue growth of about 110%. This would be a fifth consecutive quarter of triple-digit earnings growth on triple-digit revenue growth. That said, these numbers would also reflect a necessary declaration from the pace of growth experienced over the previous four quarters and set up further deceleration moving on to the final two quarters of the fiscal year.
For the Quarter About to Be Reported
Nvidia had guided investors towards revenue of $28 billion, which was above Wall Street's $26.8 billion at the time. The firm also guided its adjusted gross margin for the quarter to 75.5% and adjusted operating expenses towards $2.8 billion. These will be the numbers within the numbers to watch, as will free cash flow., which came to a mere $14.936 billion for the first quarter, which was up 33.16% sequentially and up an amazing 466% over the year-ago comp.
Concerns
There are some concerns around Nvidia's performance, not just for the quarter being reported but going forward. Investors have been scrutinizing capex spending levels for the firm's that have become Nvidia's biggest customers. To a large degree, that's the rest of the "Magnificent Seven" Have these companies seen an immediate financial benefit related to the increased spending? Not really. At least not in proportion to what is being spent.
Will there be a pressure to slow down on the spending? There could be. Though, if that happens, the base of customers will likely broaden as those able to buy fewer chips may get their opportunity to play catch-up.
We know that even with the delay of the newer, higher-tech chips built on the Blackwell architecture, which could go out into 2025, that the slightly older, still very high-tech chips that the firm can sell are still selling quite briskly.
Competition? There are some players, but they are not yet close to playing at Nvidia's level. Both Advanced Micro Devices AMD and Marvell Technology MRVL are among those occupying the next rung down. They are both at least a step, maybe more, behind Nvidia at this time. Demand for Micron's MU)memory chips are soaring as well, but that is ancillary business, not competition. Broadcom AVGO is a player too, but not a direct competitor.
So, Yes...
The Fonz will have to account for those concerns. He will provide updated guidance. The Data Center should, one would think, remain hot. Gaming and AI PC I would expect to accelerate. I look for Professional Visualization to continue its comeback as I would Automation and Robotics. This release is basically the Super Bowl for the technology sector and maybe U.S. equity markets at large.
Wall Street Is Coming in Hot!
On Monday morning, Ananda Baruch of Loop Capital who is rated at five stars by TipRanks, reiterated his "buy" rating and $175 target price for Nvidia. Over the weekend, Morgan Stanley's Joseph Moore, also rated at five stars by TipRanks, reiterated his "buy" rating on the stock and his $144 target price. Moore stated specifically that he sees the delay in the Blackwell architecture as a minor setback. This has led, in his opinion, to even greater demand for the H200 chip.
The Chart
Readers may recognize the chart above. This is an updated chart from the one I showed you three weeks ago. Readers will see that the double-top pattern did produce the bearish reversal, but that this bearish reversal has quite possibly morphed into a cup pattern that has now established going into earnings.
Should NVDA move higher from here, the pivot would be the left side apex of the cup ($136). Should NVDA develop a handle for this cup pattern, the pivot moves to the right-side apex, currently $130. Relative strength is on the strong side, but nowhere near being technically overbought, while the stock daily MACD has gone from somewhat bearish three weeks ago to quite bullish in posture.
Additionally, the stock is very close to experiencing a bullish crossover of its 50-day SMA by its 21-day EMA. My current target price is $156. I plan to add on the addition of a handle as long as it does not break below those two moving averages.
At the time of publication, Guilfoyle was NVDA and AMD equity
