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Market on edge: Nvidia stock outlook: AI demand and new products fuel growth as key earnings report approaches
Koen Hoorelbeke
Investment and Options Strategist
Market on edge: Nvidia stock outlook: AI demand and new products fuel growth as key earnings report approaches
Introduction
NVIDIA (NASDAQ: NVDA) has been one of 2024’s standout stocks, with a 193% year-to-date gain driven by its leadership in AI and data center hardware. Trading near a record high of $145.26, the stock reflects investor enthusiasm for NVIDIA’s position in AI. However, with high expectations already priced in, the upcoming earnings report on November 20 will be crucial for maintaining this momentum.
Valuation: strong fundamentals at a premium
Nvidia’s profitability supports its premium valuation. With a gross margin of 72.72% and operating margin of 54.12%, the company demonstrates efficient operations in high-demand markets. Still, its trailing p/e of 68.20 and forward p/e of 38.8x signal elevated growth expectations, making the stock vulnerable to any disappointment in earnings or guidance. Wall Street remains mostly bullish, with an average price target of $153.63. However, with the stock price already close to this target, some analysts see limited short-term upside without strong Q3 results.
Analyst sentiment: Blackwell launch drives growth optimism
Analysts continue to view Nvidia favorably, especially with the upcoming Blackwell chip launch. Piper Sandler recently increased its price target to $175, citing Nvidia’s potential to capture a large share of the $70 billion ai accelerator market by 2025. UBS, raising its target to $185, expects Q3 revenue in the $34.5 billion to $35 billion range, above the $32.96 billion consensus. They also expect Q4 revenue guidance around $37 billion, bolstered by sovereign ai investments, which could add $10 billion in 2024.
Q3 earnings preview: high expectations for growth
For Q3, Nvidia is projected to report adjusted EPS of $0.70 and revenue of $32.96 billion (FactSet consensus). UBS’s higher forecast of $34.5 billion to $35 billion reflects strong confidence in Nvidia’s ability to outperform, especially in data center sales. Analysts like Jefferies expect Nvidia-powered servers to account for 66% of data center demand by 2025-26, underscoring Nvidia’s growing dominance in ai infrastructure.
Risks: valuation, supply constraints, and competition
Despite a positive outlook, Nvidia’s high valuation presents risks. A forward p/e of 38.8x leaves little room for error, making the stock sensitive to any signs of slowing demand. Morgan Stanley analyst Joe Moore has flagged limited chip supply as a short-term risk, which could constrain Nvidia’s growth temporarily. Competition is also heating up. Amazon’s Trainium 2 chips are expected to launch soon, with AMD and Broadcom stepping up their presence in ai hardware. This increased competition could impact Nvidia’s market share and pricing power over time.
Conclusion
Nvidia’s November 20 earnings report is pivotal for justifying its premium valuation. Analysts remain optimistic, with strong demand for ai chips and the Blackwell launch driving growth expectations. However, high valuation, supply constraints, and increasing competition introduce potential risks. For growth-oriented investors, Nvidia remains a compelling ai play, but maintaining momentum will require continued innovation and effective supply management.
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