Late yesterday (August 28), Nvidia (NASDAQ:NVDA) released the latest quarterly earnings. The stock fell 3% in pre-market trading, although we’ll have to wait and see what happens as the US market gets going. Yet, there were some key takeaways to be had from the earnings release, which I think provide a signal as to where the stock goes from here.
A solid quarter
Let’s start off with some of the key numbers. The company reported second-quarter revenue of $46.7bn and adjusted earnings per share of $1.05, comfortably ahead of Wall Street forecasts. The data centre division, the crown jewel of Nvidia’s AI growth story, generated $41.1bn in sales, a record by any measure. Granted, this came in a touch below most analyst estimates. But I’d argue that’s because the estimates were set at an incredibly high level.
Building from the numbers, CEO Jensen Huang said he believes the opportunity ahead is immense, and that “we see $3trn to $4trn in AI infrastructure spend by the end of the decade”. The upbeat tone for the long term is something that I think could help the stock to keep outperforming, despite the short-term wobble we’re seeing.
China is a headache
One of the main reasons why the stock initially fell is due to Nvidia’s limited ability to sell advanced chips into China. US export restrictions have effectively walled off what CEO Jensen Huang called a potential $50bn market opportunity. In the latest results, Nvidia confirmed that no H20 chip sales to China were included in its Q2 results or Q3 guidance. That’s clearly a negative catalyst for the stock.
Huang stressed that demand outside of China remains more than sufficient to sustain growth. But for me, the absence of clarity on when (and if) China sales can resume injected uncertainty into the outlook. I don’t see this as being enough to worry investors in the long run. Yet, it’s certainly something that will grab a lot of headlines.
The path ahead
Nvidia announced a $60bn stock buyback programme, one of the largest in corporate history. It also issued guidance for the third quarter, projecting $54 billion in revenue, slightly above analyst expectations. Both of these signs are positive for the stock. After all, it goes some way to highlight that AI spending isn’t likely to slow down in the immediate few months.
If Huang and his team were genuinely worried about whether AI is in a bubble or if the China situation was a deal-breaker, I don’t think they would have provided such upbeat guidance. I do understand why the stock is falling right now. But I feel this is partly due to investor expectations being so high. The dust needs to settle in the coming week or so. At that point, I think the main takeaway will be that the party is still going for Nvidia. As a result, I still think it’s a US stock for investors to consider buying.
