Share prices often move most dramatically when companies release their quarterly earnings. And Nvidia (NASDAQ:NVDA) stock’s Q2 earnings are due on 27 August.
That’s when investors find out whether a company’s outperforming, underdelivering, or simply meeting expectations. And when a company has rallied 30% year to date, like Nvidia, the bar for results day is set extremely high.
Analysts expect revenue of $45.94bn and non-GAAP earnings per share of $1.01. For context, last quarter, Nvidia delivered $44.06bn in revenue — more than $800m ahead of estimates. Yet even that blowout wasn’t enough to spark a rise in the stock. That’s the risk when optimism’s already fully baked into the price.
Valuation’s an obvious sticking point. Shares trade at over 40 times forward earnings and more than 20 times sales. And that’s one reason why investors will want to see the stock outperform expectations.
However, adjusted for growth, the valuation metric is much more compelling. The price-to-earnings-to-growth (PEG) ratio‘s 1.36 — that’s a massive discount to the sector average. For me, as a long-term buy-and-hold Nvidia investor, I’d be content to see any continuation of the current trend.
China trends
China’s another point of interest. The US has resumed issuing export licenses for Nvidia’s H20 chip. This is a product specifically designed to comply with earlier restrictions. But it’s not a clear win. Nvidia must now surrender 15% of related revenue directly to the US Treasury — a so-called ‘reverse tariff‘ that eats into gross margins.
Meanwhile, Beijing’s quietly discouraged local firms from using Nvidia chips in government-related projects. That could slow demand, especially with major buyers like ByteDance and Alibaba having already stockpiled billions of dollars’ worth of inventory earlier this year.
Competition
Competition’s heating up too. Rival AMD has secured approval to export its own AI chips to China, and US hyperscalers including Microsoft, Meta and Alphabet are accelerating efforts to design their own chips.
These are Nvidia’s biggest customers and possibly its biggest future threat. Even modest success from in-house chips could reduce Nvidia’s pricing power and strategic leverage.
Margins are already under pressure. Gross margins have fallen from a peak of 78% to around 60%. That’s still strong, but the trend’s heading in the wrong direction, particularly in international markets.
The bottom line
Personally, Nvidia’s one of my largest holdings and I remain bullish long term. But with the stock now trading in a tight range ahead of results, I’m simply going to hold my position. After all, buying more may lead to more concentration risk.
So should other investors consider it? Well, Nvidia might beat expectations next week, but that may not be enough to push the stock higher in the short term. Investing now could see buyers fall victim to excessive volatility. However, thinking long term, I believe the stock’s always worth a look.
