Nvidia is set to report its second-quarter earnings on Wednesday, in a first test of investor appetite since last week's mass AI-stock selloff.
All eyes will be on the chipmaker's latest financials as the company sets the tone for the rest of the AI industry after a turbulent week in the sector. Several tech stocks saw shares tumble last week amid growing questions over whether AI-driven companies are being overvalued, including an MIT report that said 95% of AI pilots fail to grow company's revenues and statements from the OpenAI chief executive, Sam Altman, who said investors were possibly overhyping several companies.
Nvidia, which became the first company to reach a $4tn market cap in July, saw a 3.5% drop in shares early last week - its biggest drop in months. Stocks recovered modestly by early Wednesday, in anticipation of the company's pivotal earnings report.
Still, some analysts remain bullish on the so-called AI revolution, especially as major technology companies like Meta, Microsoft, Amazon and Alphabet are investing heavily in AI infrastructure.
"We are still in the early days of the AI revolution as the use cases are just starting to massively expand as more companies recognize the value creation being driven by a handful of tech companies," said the Wedbush Securities analyst Dan Ives. Those companies include Nvidia, Ives said.
"This week will be another flex the muscles moment for Jensen [Huang] and Nvidia as well as the AI revolution bull thesis," Ives said.
Wall Street expects the company to post $1.01 in earnings per share on $46.05bn in revenue, according to Fact Set data.
That's despite an expected hit to the company's bottom line from the restrictions on sales to China.
Earlier this year, Trump banned AI chip sales in China, a move that resulted in a $4.5bn blow to Nvidia's finances during its fiscal first quarter. In August, the company agreed to give the US government a 15% cut of its H20 chips to China in return for export licences. China, in turn, has voiced security concerns over the chips, and is ramping up production of its own domestic alternatives. Experts expect the restrictions to have some impact on the company's earnings.
Though Nvidia's chief executive, Jensen Huang, initially projected the company would lose $8bn in the second quarter due to the ban on China chip sales, that was before the company struck a deal with the US government. Analysts expect the company to continue to perform well but are wary of how these various external factors will affect the level of growth.
"The continued growth in financials and product demand, coupled with sustained demand for datacenter products like Blackwell, highlights their strong leadership position," Forrester's senior analyst Alvin Nguyen said in a statement. "It'll be interesting to see how geopolitical tensions, particularly around China, impact expected demand and revenue. The evolving AI ecosystem, adoption of Nvidia's AI software, and innovations like on-chip photonics and robotics are key factors shaping their technological edge and new market opportunities."