This Is the Most Important Number To Watch in Nvidia Earnings (Hint: It's not in the Report)
Key Points
The market will be paying close attention to Nvidia's earnings report on Wednesday, as the stock has become a bellwether for the AI boom.
Nvidia has a history of beating estimates, though the stock has usually pulled back on the news.
Forward EPS estimates have historically risen, and are a better indicator of the company's future performance than quarterly results.
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Nvidia (NASDAQ: NVDA) is set to report second-quarter earnings on Aug. 26, and all of Wall Street will be watching.
The AI chip-maker has become the world's most valuable company thanks to huge demand for its data-center GPUs, and it's also established itself as the bellwether of the AI boom.
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In other words, investors will be closely watching the company to see if there are any signs of trouble or reasons to believe that the boom could turn into a bubble.
Investors aren't expecting any signs of weakness when the company reports after hours on Wednesday. In fact, Nvidia is set to report its fastest revenue growth in nearly two years, bucking earlier forecasts that its revenue growth would gradually decelerate after its initial surge in 2023.
The analyst consensus calls for revenue to jump 97.2% to $92.2 billion and for adjusted earnings per share to essentially double from $1.05 to $2.09.
Investors will be closely watching the results as well as Nvidia's guidance, and will parse the release for details like the company's gross margin and its growth in the data center business, especially as it has begun selling the new Rubin platform.
Image source: Getty Images.
The key metric to watch for Nvidia
Nvidia's earnings reports get a lot of attention from investors, but the company's results have been relatively predictable, as Nvidia has beaten EPS estimates by a few cents in each of its recent quarters.
The stock's reaction to earnings reports has also been relatively muted. In fact, Nvidia has fallen modestly in its last four earnings reports.
For long-term investors, there's a better number to watch than the top-and-bottom-line results, or even guidance or Thursday's stock movement. That's the change in the consensus EPS forecast following the report. It typically takes a couple of days for Wall Street analysts to adjust their forecasts, but they have consistently raised estimates for Nvidia, even as the stock has been pulling back post-earnings.
As you can see from the chart below, following nearly every quarter, EPS estimates for the next fiscal year have gone up, reflecting improving expectations for the company's earnings growth.
NVDA EPS Estimates for Next Fiscal Year data by YCharts
That trend bodes well for the stock, no matter what the initial response in regular trading on Thursday is. If Nvidia gets another bump in its EPS forecast, the stock is likely to get even cheaper on a forward basis, sending a clear buy signal for long-term investors.
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Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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