To The Moon

Recently, $NVIDIA Corp(NVDA)$ saw a significant drop, falling 23.5% at one point, which made some investors nervous. However, since August, the stock has surged nearly 25%, showing strong rebound momentum.

This trend is expected to continue, with Nvidia’s stock likely to rise sharply after the earnings report on August 28. Here are three key reasons driving this potential surge:

1. Strong Q2 Performance

For Q1 FY2025, Nvidia projected Q2 revenue of around $28 billion, give or take 2%. However, Wall Street analysts surveyed by LSEG estimate an average Q2 revenue of $28.6 billion, suggesting Nvidia might be setting lower expectations.

Nvidia’s Q2 report is expected to not only exceed its own guidance but also surpass Wall Street’s estimates. Adjusted EPS should also beat the analyst average of $0.64.

Why the optimism? Nvidia and Wall Street underestimated the demand for its GPUs.

In the Q4 FY2024 report, Nvidia predicted Q1 FY2025 revenue of $24 billion, also with a 2% margin. The actual Q1 revenue came in at $26 billion, 8.3% above the forecast, with earnings exceeding market expectations by 9.8%. If history holds, Q2 results are likely to follow this trend.

2. Strong Guidance

Nvidia is expected to provide excellent guidance for the next quarter, with a higher probability of exceeding expectations than the Q2 report itself.

This confidence stems from the four major tech giants: $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Amazon.com(AMZN)$ $Microsoft(MSFT)$ $Meta Platforms, Inc.(META)$. These key Nvidia clients have indicated increased capital expenditures to expand AI infrastructure in the coming quarters.

A notable comment from Alphabet CEO Sundar Pichai highlighted that “underinvestment is a bigger risk than overinvestment.” This is encouraging for Nvidia shareholders. If Alphabet sees underinvestment as a risk, it’s likely Amazon, Microsoft, and Meta share the same view.

3. Clarity on Blackwell Chip Release

The biggest cloud hanging over Nvidia recently has been the potential delay in the new Blackwell GPUs.

If these chips are delayed, Nvidia’s revenue growth could fall short of initial expectations. Investors dislike uncertainty, and clarity is the best remedy. We hope Nvidia will provide clearer information in the Q2 earnings call.

This doesn’t mean there won’t be delays, but Nvidia will likely aim to reassure the market, possibly indicating strong demand for the new architecture. Whatever information is released, investors will quickly adjust their expectations. Importantly, any delay is likely to be temporary.