It is probably not an exaggeration to say that when Nvidia (NVDA) released their Q1 results three months ago, it was one of the most sensational earnings reports ever. We all suspected that artificial intelligence (AI) was going to be a thing at some point, but Nvidia’s Q1 performance showed us that a) that point arrived, b) the leading video chip maker was reaping the most rewards of any company involved, and c) they expected to continue to do so, as evidenced by a massive increase in their forward guidance.
Inevitably, as a result of that, both the stock and the analysts’ forecasts for future earnings soared. So, off of a much higher price and with much higher expectations, can Nvidia do it again when they release their Q2 earnings after today’s market close? Can they come up with another big beat or any other news that will drive the stock even higher?
Well, if the history of a couple of high-profile tech companies to which Nvidia is frequently compared is anything to go by, the answer to that question is yes.
Both Apple (AAPL) and Tesla (TSLA) confounded their critics for a while, matching or beating even elevated expectations as they cemented their places as the dominant suppliers in markets that fit the zeitgeist of their times. It is hard to remember sometimes, but cell phones that functioned as mobile personal computers were a futuristic idea around fifteen years ago, and electric cars were a niche with an uncertain future as recently as five years ago. Both markets, as we now know, became massive, and the companies that had an early advantage in them grew exponentially as a result. That is already happening in AI. The reality is starting to make even the massive hype around the subject look a bit understated.
Nvidia’s stock, however, is neither Apple nor Tesla. Rather, it is somewhere between the two. Tesla’s stock surged for a while on possible future results, with massive P/Es that reflected great belief in the company, whereas Apple did not have legions of adoring fans when I started to write about them here a decade or so ago. In fact, I remember back then pointing out that a P/E of around seven, well below the market average at the time, was an opportunity to buy stock in what was already by then looking like one of history’s most successful companies at a big discount to the market. Tesla was a pure growth story, Apple was about value. At current levels, Nvidia is not as cheap as Apple was at that point, but it does have actual sales that are already showing their dominance in a growing market, much more so than Tesla had a few years ago.
So, in a way, Nvidia has the best of both worlds. There is belief in the company, but they are already showing that with supply chain issues largely behind them, they can profit from the opportunity that history has given them.
What both Apple and Tesla showed is that in any tech-driven business, the beneficial impact of early success is often greater than a lot of people think it could possibly be. That success creates a strong cash position that can fund research and development of rapidly advancing technology, which gives those first to market a massive advantage over would be competitors, even big and powerful ones. A few years ago, nobody thought Tesla could beat the likes of GM (GM) and Ford (F) when it came to developing EVs, should those giants put their mind to it. In the same way, Nvidia’s critics are now saying “Ah, just wait until Microsoft (MSFT) or Google (GOOG) or whoever gets involved!”.
What they are missing, though, is that those companies are already involved, but so far have remained buyers of Nvidia’s products rather than their competitors. As long as that situation remains, and there is no sign of it changing any time soon, Nvidia can continue to do what both Apple and Tesla did before them and beat even elevated forecasts for revenue and profit, raising guidance as they go. So, on that basis, yes, Nvidia can do it again when they report after the close today, in fact they not only can, they most likely will.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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