Wall Street Wants to See $78.8 Billion in Revenues from Nvidia on May 20. Can It Pass the Test?

Nvidia (NASDAQ: NVDA) will report earnings after the market closes on May 20. On average, the Wall Street analysts covering the company expect it to have pulled in a cool $78.8 billion in sales in its fiscal 2027 first quarter -- up 77% from the same period last year.

I think we're so deep into the artificial intelligence boom that it's easy to forget how incredible this is. The largest company on Earth, which did $216 billion in sales last year, is expected to grow its revenue at a pace that most start-ups would envy.

So, will Nvidia clear the bar? And what does it mean for investors?

Nvidia keeps beating its own forecasts

Here's a look at Nvidia's recent track record, which has been flawless.

Data sources: Nvidia filings and CNBC.

The sizes of its beats actually got bigger as last year progressed, from less than $1 billion in fiscal Q1 to nearly $2 billion in fiscal Q4. On May 20, we'll find out whether that streak continues.

Nvidia's biggest customers are spending more, not less

Four companies -- Amazon, Microsoft, Alphabet, and Meta Platforms -- buy the bulk of Nvidia's AI chips to power their cloud infrastructure and AI businesses. All four have already delivered their reports for the latest quarter, and all four announced meaningful increases to their capital expenditure plans for this year.

Image source: Getty Images.

Together, they plan to spend north of $700 billion on infrastructure this year. Amazon alone is planning to spend about $200 billion, while Microsoft has pledged $190 billion and Alphabet plans $185 billion, nearly double what it spent last year. Meta is planning a $135 billion spend.

While the beneficiaries of this spending spree are many, there's no question that a huge chunk of that money will flow directly into Nvidia's coffers.

Two other things to watch

The revenue number will get the headlines, but two other items in the report could matter more for the stock.

The first is Nvidia's forecast for the next quarter. Wall Street is currently expecting management to guide for about $86.6 billion in revenue for the fiscal second quarter, which would mean an even faster growth rate of 85%. A forecast below that -- even with a strong Q1 beat -- would probably weigh on the stock. It's another reminder of just how high expectations are for this company.

The second is gross margin, which is the share of revenue Nvidia has left over after paying to make its chips. Nvidia has guided for that to be about 75% for the quarter, a level it last hit in Q4 after a few quarters of slightly lower margins tied to the ramp-up in production of its newest processors, the Vera Rubin architecture. If its gross margin comes in below 75%, the stock may struggle even if the top line looks solid.

The bigger picture

I think there's little reason to believe Nvidia won't surpass the $78.8 billion revenue target. But for the stock to really move, it would have to do so by a significant margin. The forecast will have to meaningfully exceed expectations as well. The market continues to expect perfection, more or less, from this chipmaker.

What is incredible is that despite its massive run-up over the past few years, Nvidia stock is not as expensive as you might think. It trades at about 26 times expected earnings. While that's not cheap per se, for a company growing its revenues at more than 70%, it's not a very demanding price tag, and it's below the stock's average over the last five years.

For me, the real questions are larger than this quarter or the next: Can the AI boom continue? And for how long? If you ask me, AI infrastructure spending has gotten way too far ahead of real returns, and a correction is likely.

Still, I could be wrong, and plenty of people would say I am. If you believe the AI boom is just getting started, Nvidia is still a great investment.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.