Nvidia prepares for Q1 FY25 earnings report with high expectations from Wall Street. Analysts anticipate significant growth in adjusted EPS and revenues. With the data center segment driving revenue growth, concerns arise about overexposure to the AI chip market, especially amidst increased competition. Despite potential challenges, analysts remain optimistic, with price target upgrades and expectations of continued AI demand driving investor confidence.
Nvidia is set to release its 1st quarter FY25 financial results after market closes on Wednesday, May 22. Wall Street expects a year-over-year rally in earnings on higher revenues.
The semiconductor giant is expected to post adjusted EPS of $5.534 per share in its upcoming report, which represents a year-over-year change of +407.69%. Revenues are expected to be $24.614 billion, up 242.23% from the year-ago quarter. Adjusted net profit is estimated to be $13.781 billion, up 407.97% year-over-year.
Previous Earnings Review & Outlook
Nvidia generated $60.9 billion in sales in 2023 and $29.8 billion in net profits, increases of 126% and 581%, respectively. Yet revenue really didn’t go parabolic until the fourth quarter when it generated over $22.1 billion in sales.
Management is guiding toward $24 billion in first-quarter sales while maintaining gross margins between 76% and 77%. It’s obvious Nvidia isn’t expecting growth to slow anytime soon.
What to Watch in 1Q FY25 Report?
Sales Will Be Gigantic and Profits Possibly More so
Nvidia’s business is booming in 1Q FY25, with first-quarter revenue up 242% to $24.59 billion, and profits up 406% to $13.72 billion.
The data center segment is its biggest revenue generator and demand for custom accelerators is, well, accelerating. The rapid innovation in AI and its deployment throughout corporate infrastructure is forcing the construction of large warehouses to store the advanced and complex power the technology needs.
The stock has recovered from a brief drop below $800 last month, bolstered by an earnings season in which big technology companies reaffirmed their commitment to spending billions on artificial-intelligence infrastructure, including on Nvidia's chips.
AI GPU Sales and Guidance in Focus
The chip maker faces a high bar for its coming earnings report. The reaction to results from fellow artificial intelligence favorite Arm Holdings suggests the market is looking for a sharp increase to its financial guidance.
Within the AI chip market, the company seems to have done everything right. That said, it has become alarmingly overexposed to this one industry.
In the first quarter, the data center segment (which is dominated by AI GPU sales) is expected to generate $20.967 billion, or 85% of total revenue. And the company's gaming segment -- formerly its core -- now barely moves the needle with just $2.92 billion in sales. The worsening lack of diversification makes it uncomfortably vulnerable to changes in the consumer market for AI.
As AI-related hype begins to fade over the next three years, companies will have to generate substantial earnings and cash flow to justify the billions they are spending on Nvidia's AI hardware.
Investors who buy the stock now face substantial near-term risks if the AI industry doesn't live up to expectations.
Margin Power Faces Increased Competition
Nvidia is the undisputed king of data center graphics processing units. Earlier this year, Wells Fargo estimated Nvidia owned 98% of the market. However, that was expected to drop to between 94% and 96% as rivals Advanced Micro Devices and Intel brought their own chips to market.
Previously, supply of Nvidia’s data center GPU, the high-end H100, was tightly constrained. It caused pricing to soar, further padding the chipmaker’s bottom line. But it also lost out on some business as a result. However, the situation has since changed.
Industry reports say the availability of the H100 is much smoother now. Taiwan Semiconductor Manufacturing, from where Nvidia gets its AI chips, is expanding capacity.
There is also the appearance of competitive chips from AMD and Intel that offer similar capabilities, performance and support. Pricing will begin to rationalize now, which could erode Nvidia’s margin power.
Expectations Are High, Can Nvidia Break It?
Nvidia is under pressure to keep up its record of reporting significantly higher earnings than expected. The latest evidence of the market's tough approach to any underwhelming news came from chip designer Arm Holdings, which was down 4% after its guidance for fiscal 2025 came in line with Wall Street estimates.
With other AI hardware maker shares falling in the wake of strong earnings reports, it’s clear that expectations are high.
Rival chipmaker Advanced Micro Devices Inc. tumbled nearly 9% on May 1 despite raising its forecast for AI accelerator sales this year to $4 billion from $3.5 billion. Super Micro Computer Inc., the server maker whose shares have gained more than 170% this year, dropped 14% after its earnings report that included forecasts for revenue and profits that far exceeded the average of analyst estimates.
Nvidia stock has rallied into its upcoming quarterly earnings release, and the stock price climbs closer to those levels seen a couple of months ago.
However, many experts expect the May 22 report to send Nvidia shares higher, citing that as demand is expected to keep rising. With demand for AI products and components still heating up, NVDA stock is expected to lead the charge higher.
Analysts’ Opinions
Goldman Sachs analyst Toshiya Hari raised his price target to $1,100 from $1,000 and reiterated his Buy rating on Nvidia on May 7, raising his earnings estimates for fiscal years 2025 to 2027 on average by 8% amid "robust" AI server demand and better supply.
Despite Nvidia's near 85% gain year-to-date, positive earnings per share estimate revisions are likely coming, which should help drive the stock higher, Hari said.
HSBC analyst Frank Lee says the chip giant has another ace up its sleeve which will spring a surprise vs. current expectations.
“We believe Nvidia will continue to demonstrate its strong pricing power via its NVL36/NVL72 server rack system and GB200 platform, which will once again surprise the market on the upside in FY26 (FY ending Jan),” Lee opined.
Jefferies Analysts sees NVDA stock’s dip as a key opportunity for investors before the next phase of the artificial intelligence (AI) boom. Nvidia boasts the title of being Jefferies’ “favorite” chip stock. This bodes well for NVDA as the Silicon Valley breakout sensation looks to maintain its dominance over the sector.
Indeed, analysts at the firm expect a “strong ramp for the GB200 NVL 36/72, which includes NVDA Arm based CPUs and more networking.” Analyst Blayne Curtis maintains a “buy” rating for Nvidia and a bullish price target of $1,200, implying upside potential of more than 30%.
Bernstein said it’s sticking with its outperform rating on the maker of AI processors.
“NVDA (OP, $1000): The datacenter opportunity is enormous, and still early, with material upside still possible.”
Analyst Ming-Chi Kuo said Nvidia's next-generation AI chip, the R-series/R100, will reportedly enter into mass production in fourth-quarter 2025, and will focus on improving power consumption and enhancing AI computing power.
Analysts at Goldman Sachs raised the firm's price target on Nvidia to $1,100 from $1,000 and affirmed a buy rating on the shares, which remain on the firm's Conviction List.
The firm increased its 2025-2027 non-GAAP earnings-per-share estimates by an average of 8% to reflect intra-quarter industry data points indicating continued robust AI server demand and improving supply.
Despite the stock's year-to-date outperformance, Goldman said that it saw positive earnings-per-share revisions driving another leg up in the stock, the analyst tells investors.
The investment firm said it was specifically encouraged by recent comments from the megacap tech giants, which suggested on their earnings calls that they would be spending even more money on AI infrastructure in 2025, following elevated investment in 2024.